Consumers have trusted banks with their financial lives for centuries. But the old model of only looking to a bank for money isn’t sufficient in the 21st century: customers are demanding more as the world becomes more data-driven. Studies already show the majority of consumers trust banks with personal data, the most of any industry. As trust erodes in other institutions, there is an opportunity for banks to become data vaults for customers. I’m not talking about monetizing people’s data, but an opportunity for banks to extend trust from the financial world to the data world.
Trading in trust
Banks deal in money, but trade in trust. That trust continues today, but there are new risks on the horizon. Pre-internet, having your identity stolen meant someone got a hold of your social insurance number or credit card. Now, it’s as easy as a cyber attack, something 71% of people fear will happen to them. Unfortunately, those people have legitimate reasons to fear a cyber attack. In 2021, it’s expected that we’ll see one cyber attack every 11 seconds, nearly double the 2020 rate.
The risk of cyber attacks, along with issues of fake news and AI deep fakes, has put the world in a crisis of trust. According to the 2021 Edelman Trust Barometer, people are quickly losing faith in major institutions. We are even teetering to the point where the majority of people don’t trust governments (right now it sits at 53%). Trust in the media is teetering also (at 51%). Only one institution retains high trust: business (with a 61% trust score). And within business, banks are highly trusted organizations.
Extending trust from money to data
In order to navigate an increasingly complex world, I believe banks need to take inspiration from both their own history and take a lesson from new-age tech firms. Studies are clear that consumers want banks to provide additional services and they are willing to share personal data for the sake of convenience. Now it’s just a matter of reprioritizing.
The old mantra of banking – one I was taught for nearly 20 years as a banking executive – looks something like this:
- Protect money for your customers.
- Buy-out or starve-out competitors.
- Establish dominance through land grabs (literal and figurative) and assets under management (AUM).
I propose an extension to this mantra for banks in the 21st century:
- From only protecting money to protecting money, data, and privacy.
- From buying out competitors to creating ecosystems that benefit customers.
- From building branches to building IP.
Banks already have the fundamentals of this extended mantra. It’s not about destroying traditional bank infrastructure but building on the trust banks have worked for centuries to foster.
Extension 1: From only protecting money to protecting data and money
Data is used and shared a lot like money: consumers want secure, centralized storage with the ability to share or send at will. Whether that’s e-transferring cash to a friend or sending personal data to a new application you just downloaded so you can sign up, the fundamental process is the same.
The key here is to not try to monetize the data. Don’t take inspiration from companies whose entire business model is selling data to third parties. This is how you kill trust (very quickly). Instead, focus on keeping data safe and in the hands of individual users.
Extension 2: From starving the competition to creating ecosystems
Banks already have the beginnings of a collaborative mindset focused on customer outcomes. Cashback or rewards credit cards, for example, have marketplaces where customers get access to exclusive deals. This kind of mentality needs to permeate the whole bank. Instead of only rewarding your top tier credit card users, think about how being a customer at your bank is like joining an exclusive club.
When you facilitate secure data storage and sharing, the opportunities blow open. You can give customers the opportunity to share their data with partners in exchange for discounts or other exclusive benefits. This creates a situation where everyone wins. Customers get better outcomes with more choice, businesses get first-party relationships with customers, and banks deepen business opportunities with both customers and other business partners.
Extension 3: From building branches to building IP
In a world of inexpensive capital, managing money is not the status symbol it once was. Banks already know this and quickly moved into offering various other services such as insurance or buying up tech companies. However, this mentality needs to go one step further: to build an ecosystem for customers. When you have a data custodian offering and a collaborative mindset focused on customer outcomes, the most important thing you can build is IP, not AUM.
Making someone’s entire life better simply because they are your customer is how you differentiate from competitors. Increasing share-of-wallet also becomes easier, since customers aren’t choosing between 10 undifferentiated bank competitors. They already see how banking with you gives them deals, discounts, or other perks – so taking the next step is a no brainer.
Preparing for the next century of trust with data
Banks have an unfair advantage in 2021: they are a trusted institution in a world losing trust in everyone else. However, it’s not enough to rest on the laurels of history and only think about money. Banks need to take inspiration from their own history of building trust, but also look at how tech firms are building ecosystems, working with data, and empowering customers with better outcomes. Ignore those that profiteer off data and emulate those that build better outcomes for their customers. Banks already have this foundation – now is the time to build for the next century.