ON MY MIND: Inside information
Trust has been the mainstay of relationships between banks and their clients, so why would they place their principles at risk in the battle for business?
Technological advances have intensified competition in the financial sector, as global tech giants and fintech startups have introduced new playbooks to an evolving game.
Conceived in a digital era, these newcomers have built their businesses on data. In their effort to establish viable business models, they scrape the personal information of people subscribing to their services and apps in the name of delivering relevant product advertising to fuel their revenue engines.
Financial sector incumbents lack the flexibility, dynamic infrastructure and resources to compete directly with disrupters like Facebook and Google
Apple is valued at US$612bn, Alphabet (Google) at $542bn, Microsoft at $448bn, Amazon at $401bn and Facebook at $369bn. They are the world’s top five most-valuable companies. All are technology firms and all have interests in financial services.
These companies serve billions of people. Facebook alone has 1.18bn active daily users, excluding its 1bn WhatsApp users, more than 1bn Facebook Messenger users and over 500m active Instagram users. Facebook owns these apps, emphasising its dominance in the mobile app arena, and the scale of the worldwide directory it uses to generate advertising income.
In stark contrast, the entire SA banking industry’s market value was estimated by research company Marketline at only $326.2bn in 2015. Financial sector incumbents lack the flexibility, dynamic infrastructure and resources (talent and finance) to compete directly with disrupters of Facebook and Google’s magnitude.
However, in their favour they have reputation, integrity and decades of specialised experience as reliable partners to provide financial services.
These value systems are a source of competitive advantage to leverage responsibly.
Relationships forged between individuals and their financial institutions typically revolve around the confidential management of financial affairs. This should be no different in the app world.
So why have financial institutions’ apps followed intrusive startup protocols, demanding access to contacts, microphones, cameras, locations, photographs and media? These types of permissions are on the edge of — if they do not betray — the confidentiality values associated with financial services. Unless clients cede their rights to privacy and permit exploitation of their personal information, they are denied the use of these apps.
Banks already collect abundant information on clients and maintain exhaustive transaction records. Analysis of this data reveals behavioural patterns, spending habits and insights with predictive capability to interpret events.
One could argue that banks underutilise their existing client information; why then do they need more personal information? How will access to photographs, media content or contact lists deliver better financial services?
This intrusive tactic may be attractive for the advertising-based business models of Google, Apple, Facebook, Amazon and others, but banks are not in the business of advertising or of distributing client information to third parties. They provide financial services and are trusted to do so confidentially.
Demands change, but organisations should not attempt to remain competitive at the expense of their principles. Trust and confidentiality have been highlighted as key values associated with banking affairs. These are polar opposites of publicity, which underpins the business models used by the digital conglomerates currently undercutting banks.
Traditional banks were not created to compete with these contenders, just as the new entrants do not possess some of the fundamental qualities inherent to banks. It stands to reason that until there are substantial grounds for banks to abandon their core values and shatter long-term, trusted relationships with clients, confidentiality should remain at the heart of financial services strategies.
• Dr Goneos-Malka is a marketing management specialist