From trusted stewards of money to data

Inflation rates hit a 40-year high in June, and Americans are struggling to keep up with rising prices, according to published reports. With a potential recession on the horizon and no sign that prices will drop soon, it’s more important than ever for financial institutions to build trust with consumers. In fact, research from technology platform MX has shown that trust and security are the No. 1 priorities that customers consider when choosing a financial service provider.

David Whitcomb, vice president, product at MX

Historically, that trust has been grounded in how financial providers safeguard and manage money. Consumers turn to banks and credit unions to keep their money safe, to make sure transactions are accurately reflected on their accounts and to make sure their funds are accessible when they need them. But in today’s data-driven world, being a trusted steward of the consumer’s money is just one piece of the equation.

Every customer, every account and every transaction also comes with a set of personal and financial data that must be protected. Think about it: The typical consumer has an average of five to seven different financial accounts. If there’s just one transaction each day on each account, that’s at least 1,825 transactions each year with a host of data behind each one, including transaction amount, merchant name, location, account type, account number, the consumer’s name and contact information, etc. — and the list goes on. And, according to Cornerstone Research, it’s not uncommon for a young couple to do business with 30-40 financial providers.

This equates to hundreds of thousands, perhaps millions, of financial data points per person every single year. The data is now just as important as money. So how do financial institutions move from just being trusted stewards of money to also being trusted stewards of data?

Becoming a trusted provider

The good news is that we’re on the right track. A new survey conducted by MX shows that 69% of respondents who indicated they have a primary financial provider say they trust them with their personal data. However, that still means at least three in 10 may not trust financial institutions with their personal data. This ultimately could cost businesses customers. Research from McKinsey shows that 87% would not do business with a company if they had concerns about its security practices. And 71% said they would stop doing business with a company if it gave away sensitive data without their permission.

To become a trusted steward of data AND money, here are three considerations for banks and credit unions:

1. Younger generations see data-sharing as a necessity. While trust and security is the top priority across all generations when choosing a financial service provider, the attitude and expectation for data-sharing is shifting, particularly among digitally native Gen Z and millennial consumers.

In essence, sharing personal information is a requirement for a better user experience today. In fact, 62% of U.S. adults say it’s impossible to go about their daily lives without companies collecting their data. And, while Gen Z may worry about the data being collected, they accept it as the price of admission to get the products, services and experiences they want.

For financial institutions, this is an opportunity. Trust is inherently granted until there is a reason for Gen Z and millennial consumers to take it away. Younger consumers want to share their data so that they can get more value out of their financial apps and services.

Financial institutions should focus on making it easy for them to aggregate their various financial accounts into one view, backed by strong security controls to maintain that trust for the long term. This may include:

  • Leveraging credential-free, tokenized access to share data instead of asking for usernames and passwords; and
  • Giving consumers control over who has access to their data — and which data — through a consent dashboard, where they can manage and revoke access at any time.

2. Experience is the first step in building a trusting relationship. Trust isn’t won or lost by security and privacy practices alone. Consumers also have much higher expectations for superior customer experiences.

One MX survey found consumers have a significant interest — and expectation — for a more personalized and proactive role from their financial services providers and apps. Seventy percent of consumers expect their financial services providers to give them personalized notifications and insights. At the same time, 63% want their providers to proactively help them better manage their finances.

While many now see data-sharing as a necessity to gain access to the products and experience they want, customers will go elsewhere if that experience doesn’t measure up. For instance, MX data shows that 72% of consumers said they would seek out a different bank or credit union if their preferred provider did not support connecting to their favorite fintech apps. This was even higher for millennials and Gen X at 75% of respondents.

This is just one example of how experience is now a driving factor in establishing trust. If banks and credit unions don’t deliver a good experience, security isn’t enough to keep customers loyal.

3. Data-sharing regulations will dictate the future of the financial ecosystem. While other parts of the world like Australia, Japan and the U.K. have been regulating open banking for some time now, we’re just beginning to see some regulatory movement here in the U.S. that may apply to the broader open finance ecosystem.

The Consumer Financial Protection Bureau (CFPB) will soon codify a consumer’s right to access and share their financial data through Section 1033 rulemaking. This right is the foundation for the future of financial services, beginning with open banking. In simple terms, open banking represents:

  • The clear positioning of individuals as rightful owners of their data;
  • The ability for individuals to give consent to share their financial data with third parties; and
  • The data-sharing technology, like APIs, that make open banking possible.

And, more recently, the CFPB took measures to increase federal oversight of the fintech industry, with the announcement of a new use for old authority, known as 1024, to supervise non-bank companies that it believes pose risks to consumers.

By invoking 1024 authority, the CFPB is looking to “level the [regulatory] playing field” between banks and certain fintech companies not currently subject to federal oversight. Importantly, the CFPB views “uncontrolled flows of consumer data” as risky and may recommend, through examination, that covered entities establish secure data-sharing methods (i.e., APIs) with third parties, including depositories.

Until a consumer’s right to access and share data is codified, access to consumer data, along with technical standards, disclosures and security processes tied to the data, primarily will continue to be left up to the organizations involved. Both financial institutions and fintechs should start now in creating the foundation to be trusted stewards of data before it becomes a mandate.

Becoming a trusted steward of data requires financial institutions to think like a data company — leveraging data itself as a primary function of their business. Beyond building customer loyalty, trust and satisfaction, this approach can enable new revenue opportunities, better lending decisions, stronger risk management, more efficient business processes and more personalized, proactive insights and recommendations for consumers.

David Whitcomb is Vice President, Product at MX. David has more than 15 years of experience in financial services, with a focus on how technology enables greater outcomes for end users as well as financial institutions and providers.

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