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The Transparency Challenge: Building Trust in the Digital Marketplace.

“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 questions 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 establish transparency
and integrity in earning the trust and respect of their members.

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 where two million fake accounts were
created?)  A recent Accenture study tried to quantify ‘trust’ and
noted that 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 also 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. As a result, many consumers also want to know how
personal data such as addresses, phone numbers and Social Security numbers may
be collected, stored 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 will
need to be open to innovation to achieve this, and they might well 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 the technological tools that can reinforce that
relationship and keep data secure. The results can be devastating: 1 in 4 consumers
who switched financial institutions
say their decision was based on unethical practices
at their former institution. 

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 outcry over cyber snooping has often focused on big tech companies
such as Apple, Google, and Facebook. An article in Forbes went so far as to caution
readers
against using Facebook Messenger, citing a “gaping hole” in its
security that allows data mining and invasion of privacy aimed at monetizing
the personal information of its millions of users. Firms are still engaging in
such practices, however, because access to that type of data yields
big returns
on efforts to target consumers with personalized marketing.

More
than half of consumers are particularly worried about data collection via their
digital devices, according to a 2019
survey
. Yet, most are not about to give up these devices; they expect
manufacturers, retailers, government agencies, and others to take more action
to protect their privacy. 

Massive new government privacy regulations in Europe and the U.S.,
including the California Consumer Privacy Act (CCPA), are being 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 already has proposed 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 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.

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 a positive. As a parallel, consider the initial consternation
of automakers when they faced government pressure to upgrade fuel efficiency
and safety features. Later they were able to transform progress in those areas
into effective marketing messages. Financial institutions may find it equally
effective to detail their transparency efforts via dedicated web pages, FAQs,
and social media posts.

Reported
perks of transparency
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. Data giant Microsoft, while not a financial
institution, ranks 70th on the list, has detailed ongoing efforts to improve
transparency, mentioning in its
blog
that
in recent years, more than 10 million people had used its privacy dashboard to
view, edit, delete or move data that Microsoft had been maintaining about them.

Transparency
initiatives also give financial institutions a unique opportunity to serve
unbanked consumers. These are 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.

            Interestingly, new businesses have
spring 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 “transparency by design.”

    Transparency shouldn’t just be a perk tacked on to existing institutional
    practices. Instead, transparency solutions should be built into all its
    functions. For example, when using an artificial intelligence (AI) tool, they
    can tell customers how it is being used—and let them decide what data they are
    willing to share. 
  • 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 multiple considerations
as they work to digitalize their services. 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 need to 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
principal product manager 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

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