The financial industry is facing growing demands for privacy from regulators and consumers. New regulations like the EU General Data Protection Regulation (GDPR) require businesses to provide stronger privacy protection. However, that might actually be a positive development for financial firms because it helps them to compete with privacy-focused cryptocurrencies.
Consumers are increasingly concerned about privacy and security issues, and businesses need to pay attention. A Eurobarometer survey found that 71% of Europeans opposed sharing data without their consent, while a Harris Poll revealed that 75% of Americans would not buy from a company that they did not trust to protect their data. What is more, corporations are already paying a heavy price for data breaches. The Ponemon Institute found that the share prices of companies reporting a breach fell an average of 5%. As business data policies come under scrutiny, many cryptocurrencies are gaining market share and mind share by promising consumers privacy and anonymity.
Regulators have taken action to restore trust, and the EU has led the way with the GDPR. The GDPR makes it irritatingly difficult for Europeans to access certain foreign websites, but the overall results are impressive. Financial institutions must now obtain explicit consent to share data, and clients also have the right to be forgotten. When client data is processed and analyzed, pseudonyms (such as numbers) must be used in place of client names and identifying information. Customers must also be notified when a data breach occurs, and companies face fines of up to 4% of their annual turnover in the event of a data breach. So far, the GDPR is proving extremely popular with consumers. 82% of Europeans plan to use their new privacy rights according to a study by Pegasystems, and Janrain reports that 69% of Americans favor passing similar laws in the USA. Perhaps certain American websites should start complying with the GDPR rather than blocking access from the EU.
Given the public focus on privacy, established banks and cryptocurrencies are continuing to develop new solutions. Zcash blockchain addresses are usually public like Bitcoin, but they can also be shielded for privacy. The technology behind Zcash can be used to keep certain aspects of any transaction private while leaving other parts available for analysis. J.P. Morgan has already started working with the developers of Zcash to adapt this technology for banking purposes. Further developments along the lines of Zcash could lead to the perfect RegTech. Consumers might be able to keep their transactions private and still comply with anti-money laundering laws, while financial institutions could analyze the data and effortlessly comply with the GDPR.
While implementing the GDPR is costly, traditional financial institutions may be able to attract customers by offering better data privacy guarantees. An IBM survey of business leaders found that almost 60% viewed the GDPR as an opportunity to improve rather than an impediment, and 84% believed that proof of compliance would be seen positively by prospective customers. The poor privacy records of many big tech firms and the lack of regulation in the cryptocurrency market mean that consumers may turn to banks for legally guaranteed privacy. Securing customer data to meet today’s regulations could be the first step to success in tomorrow’s markets.
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