Of digital, data and dangers

This blog is based upon an article written by Martijn Moerbeek for ‘Banking Strategies’ - www.bai.org

We’re now starting to see another wave of disruptive technology fuelled by data: open banking. We’re now starting to see another wave of disruptive technology fuelled by data: open banking. Open banking can provide you with some exciting benefits including allowing you to see data from all your accounts in one place.

Replicating Facebook’s customer experience, or Amazon’s for that matter, represents the new standard to which most industries aspire, including banking. But banks could well start falling into those same traps that Facebook now confronts.  

One early lesson of open banking in the UK is that people will forego a considerable amount of data privacy in exchange for something in which they see value. And because financial services companies are already trusted to provide sufficient value, it’s fair to say that the customer is probably willing to offer much more personal information to them: more than they’d have previously thought to give.

But if banks don’t approach this correctly it could cost them dearly, whether through breaches or data misuse, as we’ve seen with Facebook and many other companies. Also if banks gather information for the wrong reasons, they might lose their status as most-trusted businesses that put customer needs above profits.

Hard-learned lessons: How Facebook recently lost face

Lesson 1: It's important to be transparent about how data is used and who owns it. Do you know that a photo posted on Facebook becomes its intellectual property? So when Facebook users upload certain pieces of data, they actually provide much more. Whether they know it or not, Facebook could track them even when they’re not on Facebook.

Lesson 2: Personality test data can be used to harvest the data of the test takers' connections as well. Contracts need to be specific and it's vital to read carefully the contract terms of service.

Lesson 3: Data privacy needs to be a priority. Don’t start with the question, “How can we harvest as much data as possible and get as many participants as possible on board.

 Lessons for open banking

With open banking’s rise, a very real risk exists that banks could stumble by failing to embrace data privacy from the outset. Instead, when they see how its richness can open up new business possibilities they might fall prey to an insatiable data appetite. Data privacy and security need to be upfront, primary considerations. Banks must put ethics before any benefits they could gain from the data.

When customers allow access to their bank accounts, investment portfolios can be structured in a much more personalised way. Seeing how much someone spends or saves, or their multiple other financial behaviours, gives a much clearer view into their appetite for investment risk.

So what can banks learn from Facebook’s experience?

  1. Be transparent about what you do with the data.
  2. Be open about who owns it.
  3. Be open about what you’re trying to achieve with it.
  4. Establish excellent systems of monitoring and due diligence around any movement of the data.

Martijn Moerbeek is director of group digital strategy and innovation at Legal and General. He can be reached at martijn.moerbeek@landg.com.