Ceaseless banking change - from all angles

With competition in the retail banking market becoming ever more intense, banks are searching for ways to stay relevant and delight their customers. The increasing sophistication of artificial intelligence, data analytics and machine learning software offers the potential to predict what people want and offer hyper-personalised products and services, creating a strong bond with customers. Transactional data from bank accounts gives rich insight into how much people spend, where they spend and what they buy.

So, is there customer appetite for hyper-personalisation? It seems so. A survey by EY Global found that 67% of customers were willing to share more personal data to receive offers that are "more suited to long-term goals". Moreover, 81% of Gen Z customers (that's those born between 1997 and 2012) say personalisation can deepen financial services relationships.

Maintaining customer trust is crucial, so transparency is key especially while enthusiasm for hyper-personalisation is not universal. Customers want to know what data is being collated and how it is being used. They want the option to stop data sharing quickly and easily and, crucially, to control what data is shared with third parties.

Anonymisation tools have been developed in a bid for regulatory compliance. The idea is that if data is anonymised in the ether, privacy cannot be breached. However, this does not address whether the data was originally harvested in a compliant way. Using anonymised data to profile real people is still processing their data.

Additionally, as data sets increase, so does re-identification risk. Given that confidentiality is the cornerstone of the bank/customer relationship, this may mean that the risks associated with anonymisation are too high for retail banks. New consumer duty laws may create more complexity. Under the new regime, if money is made from anonymised data, the new value principle may mean that the consumers whose data has been harvested should receive fair value – something that doesn't happen at present.

Privacy is not the only consideration. The speed at which technology is evolving causes anxiety, as demonstrated by the recent ban on ChatGPT in Italy. The protection of minors and vulnerable customers and the potential for deception and misinformation are all valid concerns. Strategic regulation to support the responsible use of evolving technology requires regulatory co-operation. The Government's Digital Regulation Co-operation Forum (which brings together the Competition and Markets Authority, the Information Commissioner's Office, Ofcom and the Financial Conduct Authority) is tasked with that regulatory challenge. Increased regulation seems inevitable.

Legacy technology creates a further speed bump for some banks. Their platforms may not be equipped to deliver clear customer consent and to harvest and process the level of data required for hyper-personalisation. To turn up the dial on hyper-personalisation, some banks will need to go back to the drawing board and realign their strategic objectives, their approach to regulatory compliance and the capability of their systems. Implementation of the new consumer duty offers the perfect opportunity to take stock.

Our deep retail banking industry knowledge, technical expertise and strong working relationships with regulators, industry bodies and legislators enables us to offer practical help and reassurance to banks as they navigate these challenges. If you'd like our help, please get in touch with Helena Brown.