The value of financial data depends on who is assessing the value of the data. Consumers sometimes go to great lengths to protect their private financial information. Other parties can be just as eager to obtain it. Financial firms are generally trusted to safeguard private information, but that also gives them unique opportunities to use it. Better use of data analytics within financial institutions is often the best strategy.
While consumers value privacy, they will trade it for certain benefits according to the Oliver Wyman 2017 Trust Survey. 69% of Americans want banks to use personal data to protect them from unfavorable events, such as fraud or extra fees. Only 2% actually want banks to sell their data to third parties. Consumers are more willing to share information outside of finance according to a 2015 study by the Center on Global Brand Leadership at Columbia Business School. 56% of consumers in the US, the UK, France, Canada, and India were willing to share information for recommendations. The Columbia study also found that more than 75% would share personal data in exchange for various discounts. Some of the preference for more privacy in finance is likely to endure. However, some privacy concerns may diminish as consumers become accustomed to personalized offers and technology improves.
As the amount of information accumulated on consumers grows, the value of additional data falls. It is said that a particular marketing firm has over 1,500 data points on approximately 96% of Americans. That number has been quoted by CitiBank and appears to come from a 2011 book by Eli Pariser. Many of those 1,500 variables will not be statistically significant. Most additional data on Americans will have very little explanatory value and thus little financial value. The GDPR (General Data Protection Regulation) now limits the sharing of data in Europe. When data sales are illegal, the value in exchange drops to zero for legitimate businesses.
Given the increasing restrictions on data sharing, financial institutions are in a unique position to analyze customer data. Banks often have direct access to information about mortgages and account balances that consumers are usually reluctant to share. These few critical pieces of information frequently tell firms more about customers than 1,500 ordinary data points. Banks have considerable experience using consumer data effectively within legal limits, but there is still room for improvement.
A recent McKinsey survey of banks in Europe, the Middle East, and Africa showed an increasing focus on analytics. Most of the banks surveyed indicated that they plan to increase spending on analytics by an average of 20% over the next three years. On the other hand, McKinsey found that only 30% of the banks matched their analytics projects with their objectives. Furthermore, only 7 percent had fully integrated analytics use cases with their everyday operations. McKinsey also discovered that companies that focus more on analytics are growing three times faster than less analytical firms. Improving internal data analytics is more effective and less controversial than external data sharing.
The true value of financial data is determined by the market participant that values it the most. Consumers often have a few privacy concerns that are important to them but of little interest to businesses. Allowing customers to shield such information can provide substantial public relations benefits at low cost. The high road can be the way to a more profitable future.
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