How banks are failing to uphold their end of the bargain

and what that means for their future

Published in

Forest for the Trees

9 min readOct 3, 2016

One of the most consistent findings being reported on banking and fintech is the lack of trust that millennials have in their bank.

Time and again there is data suggesting millennials trust tech firms more than banks. Research indicates, for example, that over 70% of millennials would be more excited about a new offering in financial services from tech giants like Google or Apple than from their own traditional banking provider.

And not to belabour the point, but here are a few more recent examples:

This data goes against one of the most commonly held beliefs in banking: that banks are the most trusted partner for important and valuable personal data.

What’s most alarming about this trend is that millennials already represent the largest purchasing power by demographic.

But this is also the data that drives/funds the rapidly growing fintech industry.

Let’s be clear: we’re all entering into a social contract

Definition of a contract:

“An agreement written or unwritten between two (or more) parties for an exchange of goods or services.”

I posit that banks are failing to enter into a social, unwritten contract with their customers. And they are also failing to realise this social contract is table stakes in an increasingly online world. Banks are now in competition with some of the most valuable companies in the world, and these companies almost exclusively base their value on making sure they uphold their end of the social contract with their customers (who happen to be mostly millennials).

Here are some examples:

if you are using Google Maps for directions, you now get live traffic data. This used to be a lucrative add-on service for the likes of TomTom. Now Google provides it for free. Of course, this means Google knows exactly where you are, how fast you’re going, and where you’re going. This is pretty scary when you think about the data Google is capturing on you.

The social contract: We agree to readily give Google access to data about our travel and commuting habits, and in return Google provides us with directions, time calculations, and a comprehensive history of where we’ve been.

Back in the day, the one reason non-millennials would rush into a burning building was to save their photos. There was a whole industry (photobooks, safes, storage, etc.) dedicated to protecting your photos. What does Apple do now? It seamlessly makes your photos available to you on all your devices (so long as you are in the Apple eco-system), while backing them up on secure cloud storage. Mostly free, this service means Apple can basically stalk you through iCloud across as many of your online activities as it can get its hands on.

The social contract: We agree to let Apple enable iCloud for ApplePay, iTunes payments, who you are, where you are, etc., and in return Apple looks after our digital possessions and treasures.

Facebook, as I’m sure you’re all well aware, is a platform that gives you the opportunity to basically publish however much of your life you choose to.

The ultimate social contract: Based on your activities and likes, Facebook provides you with a curated view of the world that will (according to its algorithms) appeal to you. The more you post the better the experience is for everyone. In return, you permit Facebook to serve up advertisements to you.

In all of these cases, the customer is entering into a contract with a service provider on the basis that they hand over their personal data (and more and more of it) in exchange for a better, life-enhancing experience.

Personal data is an asset

We are all consciously or unconsciously entering into and maintaining these social contracts every time we choose to use or continue using any of the aforementioned services/products.

And this brings me back to the questions now being raised around who owns banking customers’ data.

In a millennial’s mindset, this is a pointless argument. The answer is obvious: It’s their data.

What is most interesting is that this is even an issue. Google has long been in the crosshairs of the European mandarins about their use and storage of customer data. In some cases, what has been discovered and uncovered about the data captured and stored has resulted in more questions, and ultimately the ‘Right to be Forgotten’.

However, with the full extent of the data collection (and lack of regulatory oversight) known and clear, what has been the response of millennials? Not a blip on the continued active presence of Google and Facebook in their lives. Now that’s a strong social contract.

Millennials consciously or unconsciously recognise that in a digital age, their personal information is currency. It is an asset. They are happy to enter into a contract to gain assets for this asset.

What are banks doing to engage millennials?

To set up even the most basic account, banks require more personal information than any other service. They know more about you than Facebook, Apple, and Google combined. And as soon as you apply for any type of credit (card, loan, mortgage, etc.), the information required and therefore ingested by the bank is of an even higher magnitude.

As a banking exec once told me:

“We know everything. How much you earn, when you lose your job, where you spend your money, if you are having an affair, your medical history, everything. It’s all there.”

Millennials know banks are collecting huge amounts of their personal data. But as long as banks are using this data for their benefit, they are largely comfortable with this knowledge.

There’s a growing amount of research that backs this up:

“Consumers may be willing to share their personal data with financial institutions, but only if they get what they want in return.”
“Consumer expectations are being set by companies like Google, Apple, Facebook and Amazon, where real-time predictions about future needs and behaviors build enhanced experiences.”

The current contract is falling short of expectations

As the recent Wells Fargo scandal corroborates, there is a widespread feeling that when a customer provides their personal data to a bank, it will primarily be used to push more products onto the customer.

And given how important banking is in our lives (being paid, having a debit/credit card to pay for things, etc.), we often feel we’re being forced into a fairly bad contractual arrangement. Each banking service we require either comes with a cost (e.g. a service charge or a monthly fee) or requires more personal information, that much prized asset. We are just expected to hand over our money and our personal data, while getting very little in return.

What millennials expect

Millennials expect a partnership. They’ll give you their data, and if it’s given back to them in a way that adds real value to their lives, they’ll accept a little advertising, or the subsequent loss of privacy that goes along with it. As evident in the way millennials engage with the likes of Google, Apple, Facebook, etc., they trust that the more information they give, the more value they’ll get in return.
Millennials have been conditioned to get both near immediate responses and a richer experience the more they engage. The more searching you do on Google Maps, the better and more tailored the search function becomes. Millennials also expect immediate, real-time and up-to-date content and data. They eschew email for its permanency, preferring apps like SnapChat that are all about the ‘now’.
Subconsciously, millennials expect a greater return from the personal data (their asset) than they’re currently providing to banks. When they’re not getting a return on this asset, their expectations of their social contract are not being met. It is no irony that I am talking about assets and banking.

What banks are actually delivering

So what exactly are banks delivering in exchange for all the personal information they demand from customers?

Monthly statements. To a millennial living in the on-demand economy who can search for anything on their phone at any time, the ‘monthly statement’ is beyond an anathema. They don’t know how to process it. Look at all the data on how often millennials engage on their mobile banking app to just check their balance — daily at a minimum.
Payments. Again, in a world where everything is live and up to date for every other service, if their bank says things like:

‘We will process payment at 10am tomorrow.’
‘This statement may not reflect payments made in the last 24 hours.’

Or shows a ‘hold charge’ on their credit card statement that is maxing out their limit without anyway to remove it. What do you think their response will be?

Millennials don’t care that there are systems that provide checks and balances. They’re more concerned that the people charged with looking after their financial health don’t actually know what’s happening at any given moment.

The introduction of this article by Philip Ryan captures how banks are failing to understand why committing to a social contract with customers is important:

“Have you ever received a piece of mail from your bank offering something completely irrelevant, like a home loan just months after you’ve bought a house?”

Millennials, through their social contract with Google/Facebook, expect banks to offer much more timely support. Within minutes of buying a house, Facebook will start serving them advertisements related to moving services, interior decorating, furniture services. At least the advertising they are served is useful and helpful. Whether this is subconscious or not, they expect Google/Facebook to be a partner on their life journey. They are definitely not getting the same from their banks.

What’s more, given the stresses since the GFC, there’s one thing customers care about even more: feeling financially secure and healthy, with a financial partner to guide them. Banks are not delivering on even the most basic of these expectations.

And what has been the response of banks to date?

‘Look how cool we are, you can now get your statements emailed to you rather than mailed. Look how digital we are.’

Forget about the monthly statement. Let’s totally rethink customer interaction, and works towards offering the customer a precise up-to-date snapshot whenever they want it.

Banks are failing to provide a return on the asset of personal information.

We need to move from financial service to financial partnership

Why is trust in banks eroding? There are a couple of glaringly obvious reasons.

They’re using the data to sell to you.
They’re not using this data to help you make the right financial decisions.

If banks are to weather the fintech storm, I see an urgent need for a shift in the perceived role of these long-standing institutions: from providing financial services to providing a financial partnership.

Millennials want a return on the asset they’ve entrusted with the bank. They ultimately want better financial health in return. This might come in the form of real-time information on their accounts and finances and help at the point of sale to make the right payment decisions, through to budgeting tools and alerts when they’ve spent beyond their means.

In real terms, millennials are expecting a bank to tell them when they shouldn’t make that additional non-discretionary purchase. They want tools to help make good financial decisions, and the bank to forgo the payment revenue and opportunity to charge more interest.

Am I wrong? Look at what happened when TD Canada launched PFM tools with Moven. More than 400,000 downloads in a few short months out of 6.6 million existing digital/mobile customers. That’s a 6% adoption rate in just a handful of months. That speaks to me of pent-up demand.

Until banks enter into social contracts with their customers, trust in their services will continue to erode and they will remain ripe for disruption.