Market Surveillance

Monetising Customer Data: Google vs Banks

My relationship with Google [1] goes back a long way. I started using their search engine in 2001, and since then have happily added an ever growing set of their services – from email, contacts, calendars, cloud storage and maps, through to my mobile operating system. Amazingly, they have never charged me a thing, which may be why I’ve accepted certain liberties they’ve taken in their use of my data.

In fact, my admiration for the company grew when I read a book called Googled, which described the founders’ philosophy of first solving problems from an engineering perspective, and only later coming up with commercial models to monetise those solutions. When it comes to search, the monetisation potential has been enormous. By understanding what we’re looking for, Google has been able to connect buyers and sellers and add value to both parties. At first, by placing relevant ads next to our search results, and then by retaining our search / browsing histories and placing ads on third party sites to match our interests (resulting in some embarrassing / amusing blunders when first introduced).

While privacy advocates may object to this kind of behaviour, people like me readily accepted it because Google (other search engines are available) has added value to our experience. Rather than bombard us with ads that aren’t relevant, they know our interests and help providers of relevant products/services pitch up at the right time.

What has interested me lately is the thought that, really, my bank should know more about me than my search engine provider. The old saying ‘put your money where your mouth is’ is a cliché because it’s true. Google might know my aspirations when I search for a luxury villa in Southern Europe. But my bank knows that my current budget is closer to Magaluf than Monaco.

Could knowing what we actually spend our money on (and how much we can afford to spend) be ultimately more valuable than our search intentions? And if so, how can banks monetise that in a way that doesn’t offend their customers, but adds value to their experience in the same way Google does?

I believe there are two avenues they can take, but also several obstacles they will face along the way.

Approach 1: Aggregated and Anonymous

Customer data, even when aggregated and anonymised, can still hold significant value – and its monetisation might be less concerning to privacy advocates. Imagine that I operate a chain of pizza shops and wanted to choose between competing sites for my new restaurant. Wouldn’t it be great if I knew not only the average household income in each catchment area, but also how much they spent on dining out, or specifically on pizza? If I’m a bank that holds a twenty percent share of current accounts in that area, I should be able to provide that data with greater speed, accuracy and at a lower cost than other forms of market research.

Larger scale aggregation and time series analysis could also highlight broader trends in the economy and spending patterns – potentially offering a great read on GDP (certainly the consumer portion), sector- or company-specific performance (although one would assume distribution of that data would have to be on fair, non-discriminatory terms).

Anonymised individual customer data could also be highly valuable in building more accurate customer profiles, determining individuals’ buying patterns, product demographics and/or brand affiliations. All-in-all, the possibilities are mind boggling and so broad that a blog like this can only scratch the surface.

Approach 2: Personalised

Aggregated and anonymised data holds great potential, but one would think banks will need to get personal to unlock the same kind of commercial goldmine struck by Google. Last week saw the news that HSBC has begun trialling a new app called HSBC Nudge, which provides data-driven alerts to help individuals better manage their finances. The example use case given was a ‘spending tip’ that alerted customers who’d spent more than £100 at coffee shops in the last month. While useful in itself, the leap between sending an alert and monetising that data would be fairly trivial – you would simply supplement the alert to say ‘We’ve noticed you’re spending more than £100 on coffee per month – why not sign up for the new [Coffee Shop X] gold card scheme and get a 20% discount?’ Coffee aficionados would benefit from cheaper coffee. Coffee shop X would benefit by targeting proven high value customers. And the bank benefits by serving as an intermediary.

The Barriers

Although banks are potentially sitting on an enormous data goldmine, the road to monetising it will not be straight forward. Here are some of the hurdles they face:

  1. Legal: Before anything can be done with regards to customer data, banks will need to re-paper their client base and ensure everyone has signed up to new privacy policies that permit broader use of their data. Some, like Barclays, already began that process back in 2013.
  2. Trust: The financial crisis left a lasting scar on the industry’s public image. The traditional caricature of a dowdy, risk-averse local bank manager was temporarily replaced by more of a “wolf-of-wall-street” figure. Rebuilding public trust will be key, particularly if client consent is required.
  3. Commercial: Unlike Google, my bank already charges me for their services – maybe not directly in monthly account fees, but certainly in net interest income, transaction fees and hidden charges (eg. bid/offer spreads on FX transactions). Personally, I wouldn’t mind if they also made money selling my data, but I would expect something in return. Finding the right commercial models to attract and retain customers will therefore be a key challenge. Equally, commercialising the data itself will represent a new business that brings its own unique challenges along the way.
  4. Technical: Banks have already started building competencies in the big data technologies (and agile methodologies) required for the type of use cases mentioned. Given the sensitivity of the data in question, information security (people, process and technology) will also be key. Since setting up the legal framework to start monetising its customers’ data, Barclays has already been subject to at least one high profile security breach (albeit involving the theft of data from several years earlier).
  5. Competitive: As part of the new Payment Services Directive (PSD 2), European banks will need to open up API access to customers’ account data. No doubt, many technology providers will be keen to get access to that data – providing new and innovative services that add value to customers (eg. aggregated financial planning services) and potentially the retail firms looking to target them.

Who Will Win Out?

Who will win the race to monetise customer data is not a foregone conclusion.

Incumbent banks certainly have a huge advantage in the sheer size and sedentary nature of their client base. A high concentration of current (and corporate) accounts in many countries means large banks will have very large, statistically-significant sample sets to analyse (on an aggregated and anonymous basis) and very large user bases for running personalised marketing campaigns. Even with more competition, that situation is unlikely to change anytime soon given the sedentary nature of most customers.

That said, technology firms have typically had the edge in their ability to innovate and build out disruptive new services. Should they be able to leverage the provisions in PSD 2 they may be able to share in the spoils (although a YouGov poll published towards the end of last year suggests it will not be an easy task).

However, perhaps the biggest winner (one would hope) will be the end consumer. As both incumbents and new entrants compete to generate more value from their data, they not only stand to benefit from innovative new services, but also more competitive fees as new income streams could help subsidise traditional products and services.

[1] sorry but i still can’t bring myself to call them Alphabet