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Concerns about data privacy are of the utmost importance to financial institutions (FIs), especially given the increased scrutiny from regulatory bodies, growing awareness and sensitivity among consumers, and evolving cyber and fraud attacks. These events have many FIs looking for a nuanced answer to this key question: “How do we connect to and engage with a diverse consumer base in a meaningful way without compromising security and compliance?”
As we observe the internationally recognized Data Privacy Day, marked with this year’s theme of take control of your data, it’s an opportune moment to examine the most effective and responsible ways for FIs to leverage data to meet modern consumer expectations.
We’ll explore the subtle balance between privacy and personalization in the digital-first era, and the challenges that keep FIs from realizing their full potential.
Balancing Privacy & Personalization
An experience tailored to consumers’ unique needs and expectations is table stakes in the modern marketing world, and this is especially true for banks and credit unions. According to Capco research, nearly three-quarters (72%) of consumers believe a personalized banking experience is “highly important.”
As an industry, we know consumers crave tailored approaches across every financial touchpoint, yet many FIs are falling short. Financial needs are varied across segments, and today’s consumer wants messaging that reflects their individual pain points and preferences. Not to mention a tailored approach is beneficial (and more cost-effective) for FIs, too.
For example, FIs that rely on mass marketing for things like credit card offers are spending unnecessary money on too broad an audience. Many of the offer recipients will either not qualify for or be interested in a new line of credit. Using first-party data to drill down and create a segment of customers that meet eligibility criteria and who may have an interest, however, can maximize campaign engagement and be more cost-effective.
So, it makes sense to personalize from a campaign performance standpoint, but it also makes sense from a customer-centric perspective. Consumers do not want to be lumped into peer groups dictated by age or gender. Instead, they are looking to engage with FIs that recognize them as individuals, anticipate their needs, and deliver tailored products and services that can fulfill those needs. And most consumers are also willing to share personal information in exchange for those types of experiences.
But this is where balance is key. While customers are attuned to an FI’s level of attention to detail in offering customized offers, they are just as keenly aware of other ways sensitive data is being used – and the associated risks. This conundrum is widely known as the “data privacy paradox.”
A study by Razorfish in partnership with research firm GWI showed that most consumers want to maintain control over personal data and how it is accessed and used. More than half of consumers (54%) showed interest in the ability to erase all personal data from an organization’s database, and four in 10 (39%) expressed interest in owning a centralized location for all personal data with control over how that data is shared.
Even still, more than half (56%) of consumers trust banks, making financial services one of the most trusted industries. And nearly two-thirds of consumers (65.8%) said they would gain trust in a company that was transparent about how personal data was used. In other words, consumers are open to this ‘give-and-take’ if they believe the FIs will use the information to make consumers’ lives easier.
Financial institutions face the challenge of striking a delicate balance that fosters trust and transparency. They need to utilize data to deliver the personalized and convenient experiences that consumers expect, all while implementing robust and compliant data protection measures. Unfortunately, this is often easier said than done.
The Challenge Faced by Financial Institutions
It’s no secret that legacy technology hinders banks’ ability to modernize and deliver experiences that consumers expect in the digital era. The limitations of legacy systems—including data integrity and quality issues, inability to scale, costly maintenance, and outdated technology—prevent FIs from fully harnessing data analytics.
Without the ability to glean crucial customer insights and make decisions based on real-time data, FIs will lack the relevancy that makes offers truly successful. FIs are sitting on a goldmine of data but often lack the tools to understand how to increase the attractiveness of their products.
What’s more, stringent data privacy regulations often have a chilling effect on the pursuit of hyper-personalization—which is the level of customization that most effectively moves consumers to action. Instead, FIs are stuck in a siloed world that may offer an antiquated illusion of information security at the cost of clean, relevant, and accessible data—everything needed for a holistic consumer picture that enables targeted communications.
A skill gap in data management is perhaps one of the most overlooked challenges within financial services. According to the U.S. Bureau of Labor Statistics, an estimated 124,000 voluntary resignations occurred in the financial services industry in November 2023 alone—accounting for nearly 4% of the total private sector resignations in that month. This turnover significantly inhibits FIs’ ability to maintain expertise in areas like data management and can stifle efforts to scale operations. It’s no surprise that retaining and recruiting employees was the top concern expressed by 34% of bankers going into 2023.
While these obstacles are certainly complex, MeridianLink has a simple, yet powerful solution.
Compliance & Customer Satisfaction, Without Compromise
Navigating the intricate balance between personalization and data privacy is crucial in today’s world, and at MeridianLink, we not only address these concerns but can help you turn them into opportunities for growth and success. Regardless of where you currently stand in your digital journey, our purpose-built solutions offer a clear path to navigate banking complexities while delivering personalized, secure, and relevant experiences to your consumers.
The delicate balance between privacy and personalization is evident in consumer expectations. Research underscores their hunger for enhanced, personalized experiences that anticipate and cater to their preferences and needs. In many cases, consumers are willing to share personal information when financial institutions are purposeful and transparent in how that data is used. It’s a digital tightrope walk that requires the right tools and resources to gain valuable insights without breaking consumer trust or skirting regulations.
That’s why we’ve created a digital ecosystem that places equal emphasis on security, compliance, and customer satisfaction. Our cloud-based digital lending, account opening, and data verification solutions stand as a transformative force, breaking through those barriers and empowering you to deepen consumer connections, expedite profitability, and seamlessly prioritize security and compliance as you scale up.
Together, we can prioritize your success in the digital age with confidence and innovation.
