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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 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 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/.

This content is for CU BUSINESS eMagazine , THE TEAM BUILDER (GROUP SUBSCRIPTION), and Special Deal: 2 websites members only.
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