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The Transparency Challenge: Building Trust in the Digital Marketplace

Ananya Bhattacharyya

“Transparency.” It’s a goal, a
claim, and a buzzword. It’s also an often-heard pledge by businesses offering
everything from sportswear to auto parts to health insurance. For credit
unions, built on the trust of people who are “members” and not just customers,
working toward transparency poses a special challenge in the digital
marketplace.

A recent Forbes and
Statista survey

asked consumers about issues of trust, terms, branch and digital services and
advice from their financial institutions. Only 2.6% of banks and 3.5% of credit
unions made its list of companies with the most satisfied customers. That means
credit unions have a long way to go to earn their members’ trust.

For financial institutions, this is
a time of evolving consumer expectations, heightened privacy regulation, and a
widening trust gap between individuals and the businesses that serve them.
(Remember, the Wells Fargo fiasco of 2016, in which 2 million
fake accounts

were created?) A recent Accenture
study
found
54% of surveyed companies that experienced a drop in trust also saw a
commensurate drop in revenues.

While people want to manage their
finances with nifty digital tools that work efficiently, they also want to
protect their privacy. They worry about reports of data breaches and
cyberattacks that expose people’s personal information to the public or become
a treasure trove of data for hackers. Many consumers want to know how personal
data such as addresses, phone numbers, and Social Security numbers may be
collected and shared. A 2019 Pew
Research Center survey

found that 79% of Americans are concerned about how companies are using their
personal data, 81% believe this data collection poses risks for them, and 81%
feel they have little or no control over data that is being collected.
“Transparency” in this context means disclosing these facts in an honest and
trustworthy way. 

To prosper in the digital
environment and attract members who increasingly live on their smartphones,
credit unions must prioritize the quest for their members’ trust. They must be
open to innovation to achieve this, and they might find that enhancing
transparency will be good for business, too.

Challenging times

All banking and payment
institutions are networks of trust, and repositories of important personal and
financial data. But a PYMTS.com report on
credit union innovation

noted that trust is an especially significant factor for credit union members.
It figures strongly into the consumer’s decision to choose a credit union and
to stay loyal to it. As not-for-profit organizations, credit unions pledge to
earn that loyalty by not only safeguarding members’ funds and investments, but
by returning profits to members through reasonable rates and fees Thus consumers’
trust may lead to more retention, resulting in higher profits.

Unfortunately, many credit unions
have been slow to adopt technological tools to reinforce that relationship and
keep data secure. That has the potential to damage their business:  In a MarketMatch
survey
,
more than half of customers said they would leave their bank or credit union if
an incident involving fraud was not handled properly. 

Bill Raker, the retired CEO of a
large credit union in Minnesota, said that while a major national bank might
have ample in-house resources to design transparency technology, such as
website tools, that may be difficult for the average credit union. Smaller
institutions often lack resources, Raker said—not only the funds to invest in
new transparency technology, but people on staff with the tech skills to make
that happen. “Larger
credit unions are doing better with this, putting technology in place to
protect privacy and data,” Raker said. “In general, I would say credit unions
are not there yet.”

Marketplace demands

Two major forces represent the
thrust for trust and transparency in the marketplace: consumer concerns and
current or pending government regulations.

Reports
of data breaches prompt worries about the safety of people’s online data. The resulting
public outcry
over cyber snooping has often focused on big tech companies such
as Apple, Google, Facebook, Amazon, and Microsoft, but it hasn’t stopped data
mining and similar practices. That’s because access to consumers’ data yields
big returns
on efforts to target them with personalized marketing.

An
eye-opening
report
by the Mobile Ecosystem Forum spotlights consumers’ concerns about
their online privacy, even as their smart devices are often tracking their
locations and other data. It’s clear that most people are not about to give up
their devices; rather, they expect manufacturers, retailers, government
agencies, and others to take more action to protect their privacy. 

Massive government privacy regulations in Europe and the U.S.,
including the California Consumer Privacy Act (CCPA), have been enacted to give
consumers greater control of their personal data. The
Brookings Institution
, to mention just one organization supporting these efforts, notes
that the Federal Trade Commission proposed years ago that the following
measures be required of companies doing business online:

  • Clear notices of data practices including how they collect, use,
    and share people’s data.
  • The right of consumers to choose how their data is used.
  • An ability for consumers to review, correct, and delete their
    data.
  • Security measures that guard against unauthorized access to data.

The
Brookings writer, a former FTC attorney, suggests that drafting a federal
privacy law should be the next-most-urgent issue for legislation after handling
the COVID-19 pandemic.

Costs
and concerns

“Compliance with the CCPA is a
significant undertaking,” says the National Association of Federally Insured
Credit Unions in an issue
brief
on
data privacy issues. The California attorney general estimated in 2019 that
initial costs of compliance with the California Consumer Privacy Act
regulations will be about $55 billion—with total compliance costs over a decade
ranging up to $16 billion.

Since then, the CCPA has been
reframed as the California
Privacy Rights Act

(CPRA), with even more requirements for businesses. In 2021, increased
demand for privacy regulations

is expected to be a global issue.

Credit unions will have to
inventory all the data they have stored, and map out how they receive,
transfer, and use consumer information. Procedures and staff training are
necessary to ensure that consumer requests, including for information and
opt-outs, are handled properly. Financial institutions also must examine their
agreements with third-party vendors to make sure those interactions are
sufficiently protected.

Compliance as a positive

There are definite upsides that
make working toward transparency worthwhile. Staying in business might be one
of them. Transparency tools are a perfect fit with all the other innovations
consumers expect from financial institutions now. A Business
Insider study

found that 97% of millennials already use mobile apps for their banking transactions,
and no one is eager to switch back to frequent visits to bricks-and-mortar
banks.

What’s
more, businesses everywhere are finding that it’s possible to turn transparency
compliance into positive marketing messages. As other sectors have done, financial
institutions may find it effective to detail their transparency efforts via
dedicated web pages, FAQs, and social media posts.

Reported
perks of efforts have included public acclaim (such as praise for the social
media software company Buffer) and customer satisfaction (such as with
Southwest Airlines). “In 2020, the best businesses are transparent ones,” says The
Org
, using
information gathered via interviews, their database, company websites and
public documents to rank the world’s most transparent companies.

In another
example, financial services giant American Express was added to the list
recently, taking 58th place following improvements to its disclosure
practices. Paypal, Bitcoin Association, and Lendable are other financial
service firms on the list.

Transparency
initiatives also give financial institutions a unique opportunity to serve
unbanked consumers. Trust is especially critical for these people, who struggle
as they move away from cash-based services but still need to conduct financial
transactions as they go about their lives. The presence of FinTech firms on the
most-transparent list illustrates their role in building consumer confidence,
especially with this unbanked population.

Strategies
for success

            Credit union executives can learn
from other industry segments. It is especially important for financial
institutions to follow the example of companies like American Express that have
been proactive
in their approach

to the transparency challenge.

            New businesses have sprung up with
offers to do the heavy lifting for companies endeavoring to comply with the
California privacy law. Regardless of whether they outsource the job or use an
in-house team, financial institutions need to understand the basic strategies
and tools for transparency innovation. These include:

  • Think
    in terms of “
    privacy by
    design
    .” Transparency shouldn’t just be a
    perk tacked on to existing institutional practices but embedded into all of
    them.
  • Explore
    the available transparency software and platforms.
    It’s an ever-expanding market that
    includes tools for virtual assistants, fraud alerts, fee disclosures, and
    transactions enabled by voice and text. Consumers also may benefit from
    customized offers, loyalty rewards, and options that help them make decisions.
    (Think: Netflix.)
  • Consider
    tools such as distributed ledger technology.
    Best known: Blockchain, which financial institutions can
    adapt to enhance transparency and security. The advantage comes from inputting
    and verifying data from multiple sources, rather than having a single authority
    in charge of all the data.
  • Recognize the power of platform, network
    effect, and agility
    . Credit unions need to stay nimble, and
    one way to achieve this is by leveraging open banking FinTech and the platformization
    of financial services.  
  • Understand how innovation can
    reassure customers who are not highly tech-savvy
    .
    Honest information about how their personal data is used makes them feel more
    secure about their financial transactions and the options available to them.

            In
the crucial area of digitalization, credit unions have numerous tools to
consider. These include channels to digitalize core services, both online and
mobile, connections to the local payments’ ecosystem, and robust cybersecurity
measures.

            Reliability,
security, advice, and relevance must be woven into every touchpoint to
reinforce trust as well as the credit union’s brand. Two examples worth looking
at are Civic
Federal Credit Union
,
based in Raleigh, North Carolina, and Alliant
Credit Union
,
based in Chicago. Both illustrate that the transformation to greater
transparency is a journey, rather than just a few strategic decisions.

            As
Raker advised, “Financial institutions’ robust commitment to disclosure on
things like interest rates should extend to equally clear online disclosures
about people’s personal data, including data breaches and opt-out procedures.”
He believes that as credit unions become more inclusive, the basis of
customers’ trust may be “not so much in the relationship [with the business]
but in ‘how am I being treated … is that institution doing what’s good for me,
or what’s good for the institution?’”

Inaction not an option

The digital revolution has made
trust and transparency more urgent issues for all businesses, including
financial institutions. With the consumer in the driver’s seat, executives also
must decide which types of data decisions they can prudently share. Add in the
pressures of the pandemic and a trend toward government regulation, and it’s
clear that inaction is not an option. People want their privacy protected,
their personal data secured, and their financial transactions clearly defined.

It can be challenging to build in
the transparency measures the marketplace demands. Credit unions need to
embrace the changes that are possible when digital innovation responds to
consumer demands. And creative, purposeful use of digital tools will ensure
convenient access to this information. Ultimately, being proactive in these
efforts will help attract loyal customers who will look at all the banking
options out there, and then choose a credit union to safeguard their finances
for the long term.

About
the Author:

Ananya
Bhattacharyya is an enterprising, process-driven, and globally experienced
product leader at MasterCard. She has a strong technical and financial services
background and continually strives to guide creative vision, organizational
change, customer-driven innovation, product transformation and strategic
thinking in her professional career. For more information, please email bhattacharyya.ananya@gmail.com or
visit www.linkedin.com/in/ananya-bhattacharyya/.

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