Last month's backlash against Instagram's overly broad proposed terms of service is the latest reminder that consumers are easily enraged if they feel companies are abusing their data and relationships. That is essential to understand for anyone engaged in interactive finance. Winners will be defined by who does the best job of developing an intimate financial snapshot of customers without crossing the line into being “creepy.” FIs have a trust advantage in mining transaction data. Banks and credit unions are the incumbents that already invest heavily in security not only because that is what regulators require but also because it is in their self-interest to minimize fraud. For example, 38% of consumers are comfortable/very comfortable letting their banks or credit unions track or analyze their transactions in order to provide better service — a level of trust that is three times higher than for third-party affiliates and merchants and billers. But FIs cannot afford to feel smug or act complacently. Trust in FIs is under assault by a seemingly endless list of players that includes Apple, Google, Facebook, Amazon, PayPal, and innovative startups in PFM and payments. Once this trust advantage is lost, it is unlikely it can ever be restored.  In the face of this endless list of players, Javelin’s 10 Trends for Financial Services in 2013 report identifies some worrisome signs for FIs:

  • The FIs’ trust advantage erodes among consumers who are comfortable with technology.
  • The No. 1 reason consumers are wary of a one-stop, PFM-based approach  to online banking is that they feel the host FI will know too much about them.
  • Consumers are strongly motivated by practicality and convenience, and many will take a chance on lesser-known providers to obtain the services they desire. For example, 56% of consumers overall say they are most likely to use PFM tools from their primary bank or credit union, but that rate plunges to 40% of young adults. They are significantly more likely to use PFM services from non-FIs such as merchants, search companies, mobile carriers, app developers and billers. 

One question is inescapable: Who owns the data? Does the customer have a right to decide who has access to data and how it will be used? Or is it owned by the companies that identify ways to add value to that information by turning it into personal finance advice, targeted merchant offers, and turn-by-turn directions? Whatever the answer to that question, the practical reality is that it will be hard to profit from consumer data over the long term unless companies establish strong bonds of trust with their customers. That will require more than transparency. It requires demonstrating that your customer’s interests at heart.

For more on the role of trust with consumers, see Javelin’s report –10 Trends for Financial Services in 2013.

Author

About Mark Schwanhausser

Mark Schwanhausser is JAVELIN’s Director of Omnichannel Financial Services. Mark strategizes how financial institutions (FIs) can track and serve customers across whatever channels they use, and provide a consistent, integrated brand and user experience. Mark helps banks and credit unions profitably enable customers to monitor and manage their money more intelligently through technology such as online banking, mobile banking, personal finance management, financial alerts, and technologies on the horizon like wearables.

Mark led the development of JAVELIN’s Financial Journey Model, which builds digital banking on a foundation of 10 time-tested personal finance principles, and JAVELIN’s holistic segmentation, which enables FIs to prioritize their investments to serve the critical needs of the profitable Moneyhawks™, high-value Traditionalists, and up-and-coming Emergents. His other work in 2015 has focused on how banks and billers can turn off paper statements by closing the “digital commitment gap,” why digital account opening has reached a tipping point, and how FIs can use alerts and notifications to initiate daily “conversations” with customers.

Before joining JAVELIN in April 2008, Mark worked for nearly 26 years at the San Jose Mercury News, mostly as a personal finance reporter writing about money and emerging trends in financial services and payments technology.

Mark has a bachelor’s degree in journalism from the University of Missouri at Columbia and attended Antioch College.

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