Trust Is The New Oil
Some people say that “Data” is the new oil. It isn’t. ‘Customer Trust’ is an even scarcer, more valuable commodity.
The average lifespan of S&P Top 500 companies has fallen by a third. In the years before 1960 the average lifespan was around 60 years1. Now it’s only 20 years. The mantra is thus: “innovate or die”.
But innovation is only half the equation. Consider the chart below:
- Trust (top right box)
These companies innovate and use customer data to create value. For example, Netflix delivers value to subscribers by being better than its competitors at making recommendations on what you should watch next. It does this by exploiting your personal viewing patterns (ie, which shows you watch and whether you abandon the show). Importantly, subscribers trust how Netflix uses their data (it is ranked the 9th most reputable company in the World2).
Value + Trust = dominant market share3.
- Switch (top left)
Companies that create value, but have a bad reputation for data misuse fall in this category. These companies will remain relevant so long as they have market power, but customers will switch providers as soon as a viable alternative appears. Search for ‘most hated companies’ and you will find Facebook, Uber and Wells Fargo because of breaches of customer’s trust.
- Relevant? (bottom right)
These companies are trustworthy, but they could create more value by leveraging customer data. Consider eBay: despite having first-mover advantage, eBay’s share of the eCommerce market stands at 0.8% according to a 2018 report by IBISWorld4. Amazon and Facebook are better at reading customer needs, and prompting repeat purchase.
Where does your bank sit?
The Trusted Bank
If I am a loyal customer, I’d place my bank in the top-right quadrant, ‘Trust’. Although new entrants may offer similar value, I wouldn’t switch because I would not trust them to use my data responsibly.
Many customers might trust their bank, but they feel apathetic about them: “they’re all the same”. The challenge for these banks is to increase customer value by leveraging the mountain of payments, transactions and financial data at their fingertips. Like eBay, banking customers may be easily enticed to use other providers, and this will become even more relevant as open banking regulations come into play.
Implication for banks
As banks embrace new technology to create more value, such as biometrics, AI and voice recognition, they run a greater risk of abusing the customer’s trust. Instead of moving to the ‘Trust’ quadrant, they could slide into the ‘Switch’ or ‘Avoid’ quadrant.
The challenge for most banks is to put in place systems that deter the misuse of customer data AND at the same time avoid stifling innovation.
It’s a simple concept, fraught with difficult dilemmas in execution. For example, if a bank could use social media data to better assess the loan worthiness of a borrower, should it? If it could reduce default loss by 50%, should the bank embrace this practice to benefit shareholders? What if smaller competitors use it to cherry pick customers with better credit worthiness, leaving incumbent banks with higher risk customers? On the flip side, does this constitute a misuse of customer data? Is it a breach of privacy? What if customers don’t give the bank consent to use this data (assuming you think we need their consent to use publicly available data)? What safeguards would a bank need to ensure some disadvantaged customers are not discriminated against?
At Xempli, we’ve come up with a set of scenarios that deal with these dilemmas, to better prepare your team for an open banking future. Speak to us for a demo.
2Survey of the World’s most reputable companies in 2019.
3In the US, Netflix has 51% market share, followed by Amazon Prime with 33% (https://www.cnbc.com/2018/03/29/nearly-60-percent-of-americans-are-streaming-and-most-with-netflix-cnbc-survey.html). In Australia Netflix has ~10m subscribers, followed by Foxtel with 5.4m subscribers (http://www.roymorgan.com/findings/7681-netflix-stan-foxtel-fetch-youtube-amazon-pay-tv-june-2018-201808020452).
4Survey of the World’s most reputable companies in 2019.