The Customer's Data Revolution
The next 5 years, expect a disruptive transfer of data ownership from the business to the customer. Like the revolutions of the past, the ideas are originating from Europe, but the effects will spill over globally. I think we will at least see a 10% drop in consumer prices depending on industry and market. In this post, I tell you why and 3 strategies to face the new reality.
The effects of MNP in Telecom
Let’s start with a cute little data portability case from the past. The European countries introduced Mobile Number Portability (MNP) in the early 2000s as a result of a mandate from the European Commission. In essence, MNP enables mobile telephone users to retain their mobile telephone numbers when changing from one mobile network carrier to another. Today NMP has been adapted in most countries across the world where mobile penetration is high. Required porting cost is mostly free and porting time varies from within 24 hours in most markets to 30 days in a few.
Sounds simple? Think about it. We are talking about one single data attribute: your phone number. Suddenly the consumer themselves owned it and everyone could continue contacting them by the same number, regardless of who supplied their phone service.
The one attribute ownership change left a clear mark on the market. A paper examining the effect of MNP on market price and consumer surplus 1999-2006 in the 15 EU countries found a significant impact:
Data Disruption in Telecom: Shifting ownership to the consumer of the one little piece of information (phone number) gave 15% of the total consumer surplus in 15 EU countries 1999–2006. MNP decreased mobile market price by at least 4.15% and increased consumer welfare by at least 2.15 euros per person per quarter.
The Disruptive Rise of APIs in Banking
From the start of next year, EU’s PSD2 (Payment Services Directive 2) will break down European banks’ monopoly on their user’s data. Two major changes will have to be implemented though APIs (Application Programming Interfaces) from 2018:
(1) When you buy something though a merchant (like Amazon) it can make a payment for you directly to your bank with your permission, without having to redirect you to another service (like PayPal or Visa).
(2) Through aggregators that you give your permission (could be Facebook) you can consolidate a customer’s bank account details from all your different banks. Fintechs like mint.com has offered a similar service in some markets, but now it is regulatory required in the EU.
(2) is the issue here. Due to PSD2, consumers can from 2018 select how they manage, display and port their bank data through on demand APIs used by fintech startups and other Bank. PSD2 will most likely be both a catalyst for both disruption and strategic renewal in Europe’s banking markets.
The disruptive effects are difficult to estimate, but according to this 2016 survey 88 percent of consumers use third-party providers for online payments. These users will be exposed to the regulation through the providers and will be tempted on ease of use and oversight. Therefore, if banks don’t embrace the change, many banks risk losing the client interface of the service or even worse the client relationship itself. What the effect by becoming just a wholesaler for a bank will be is just my speculation. If you look at price / sales ratios across industries in the US the is avg 1.7. In retail banking, the multiplier is 4.4. Assuming similar industry averages in EU, a massive amount of that margin will diminish if a bank go wholesale.
Data Disruption in Banking: Due to PSD2, consumers can from 2018 select how they manage, display and port their bank data though on demand APIs used by fintech startups and other banks. No delays and few data attribute restrictions. The question is if banks at all can stay in business medium/long term if they don’t embrace the change through strategic initiatives that address the change.
The Data Revolution in Europe
By now, GDPR (General Data Protection Regulation) should be fairly well known. In a nutshell, from 25th of May 2018 GDPR gives the consumers control to the use and access to their data. Their rights are the right to transparency on all their data, the right object to the use of their data, the right to be forgotten and the right port their data. It’s a comprehensive regulation, and it impacts on areas such as product development, advertising, analytics & machine learning and data management. Fines on breach are potentially massive and projects to comply are costly.
Essential for our discussion is that GDPR introduces the right to data portability — The right for a data subject (customer) to receive the personal data concerning them, which they have previously provided in a ‘commonly use and machine readable format’ and have the right to transmit that data to another controller. What this means is that under GDPR all personal data attributes should portable to other competitors or other third parties. Compare this to our little case of the number portability (one attribute) case in the mobile industry.
If PSD2 and standardized APIs per industry shows the way portability will be implemented in GDPR, think about some example consequences:
- Any company you give permission can access your telecom data. For instance a bank can use your call records to create a precise credit profile.
- Across all your social media sites you can have one core hub that accesses them all the data into one core — given your permission.
- Your medical records can be moved to any doctor you choose. It can also be transferred to your insurance company to receive a cheaper life insurance.
- Your favorite digital service provider (if you really trust it) can become the custodian of all your data — no matter what the source. Through AI it can give you coaching in how to improve your life in multitude of dimensions.
Some of the cases maybe sound spooky, but probably not so far fetched if the advice is truly valuable — then a majority of consumers will give consent on sharing their data:
Data Revolution in EU: With GDPR you in principle have complete portability of all your data to anyone. However, nobody knows exactly how that will be governed. I think PSD2 in the finance industry will show us the way through standardized APIs by industry. If that becomes a reality, the effects may become massive.
The market effects of the GDPR portability requirement is difficult to predict because such a data disruption is completely new to history — at least from my knowledge. Still, let’s speculate on isolated effects: if the NMP gave a 4% revenue loss for the telco industry in EU for the portability of one important data attribute, what will a complete data set portability mean? For freeing up all consumer attributes, I believe we can expect at least 10% isolated fall in revenue for many consumer facing industries. In some industries the effects can be much larger. It all depends on what the ownership of customers’ data means for the specific industry’s revenues.
You think 10% sounds large? Reflect on the following: Some of the biggest digital players Google/Alphabet and Facebook, derive over 90% of their revenue come from an advertising model based on their customers' data. If their core asset suddenly is not their own anymore, but their customers, what happens? If suddenly their customers can move that data freely to any competitor or substitute, it is likely that the price Google/FB charges for their advertising will drop significantly as their data is not unique anymore. The effect is only strengthened by the fact that their customers in addition must give explicit consent to be used for that advertising. That will strengthen the effect. Similar analogies can be done for many increasingly data driven industries such as banking, retail, airlines, ecommerce, etc.
The European Revolution goes Global
The mentioned regulations affects any businesses that controls or processes data for European customers (meaning most international companies), and European companies conducting business abroad. The effect of that we observe for instance in that 92% US companies plan to adopt to GDPR.
How global companies will differentiate among users EU and non-EU countries I can only guess. As one perspective, imagine Google delivering global services and having different privacy policies for US or Indian citizens compared to Europeans. I don’t think that will be very positive for either their brand or reputation, and ultimately their market share. That is maybe one reason why Google for instance has now turned off reading of emails for gmail ads globally. As required by GDPR, I would personally never accept the consent question “Is it ok that my company read your personal mail (or listen to your phone calls) and give you advertisement based on what you say”. I’m sure they tested it out and came to the conclusion that not many other customers would either.
The global impact is especially interesting in a consumer trust perspective. If you look at the graph, I have mapped Global Corruption Index to the Interpersonal Trust. The trend is that trust is moderately to strongly (factor: .56) correlated to low corruption. “So what” you might think. A fact is that many countries outside Europe have high corruption indexes. In countries like these, companies have an opportunity to be a proponent of data protection and privacy as a competitive advantage. By applying the regulation in Europe and letting it spill over globally they can increase market share.
Lastly but not least, consumer privacy awareness is increasing across the globe. According to this survey across major countries on 3 continents 86% of consumers had taken action as a result of trust concerns, e.g. including warning friends & family and using a competitive service. This is a 9% point increase from last year and really shows how privacy are affecting users globally. This willingness by consumer to protect themselves is likely to increase. With all the attention the topic is getting in 2018, the more consumers will learn, be aware and take more frequent action.
The global data revolution: Privacy awareness and company strategies focusing on privacy will not only rise in Europe, but will spill over globally into most consumer facing industries. The coming regulations, the increasing consumer awareness and emerging technologies will strengthen and galvanize the trend. That again will be strengthened by many countries outside EU adopting similar regulations. Many already have regulations in place, and will likely be adopt to align with the EU.
How to stay in command?
Privacy and transfer of ownership to consumers of their data is a trend that is here to stay, so the best strategy is: Embrace the change. This can mean many activities but let’s list a three important ones:
- Build a trustful and dialogue-based customer experience based on consent and transparency: Be relentless in how you design privacy and data transparency as a natural part of you conversation with the customer across all touch points. Some of the digital only companies are doing this pretty well by now and increase the focus. The opportunity is there for all industries and should probably be a core part of the strategy of any brand.
- Commercially activate your data as part of regulatory compliance initiatives by establishing strong data and consent management. I have previously described inventory and data activation as the most strategic ingredients in the The Secret of Capturing Value through Digital Transformation. The right ways to establish data management is to have the customer experience first and business objectives second in how you approach the regulations. The initiatives should be organised into programs run jointly by marketing, analytics, privacy and product/technology to approach the end-to-end customer journey. In this way, you can activate your data for commercial use (typically marketing & personalisation) and get an advantage to your competition.
- Establish your company as trusted data bank for customers to store, manage and sell their own data. Companies across industries such as telcos, media, social networks and banks trying to establish this position. Startups are also targeting similar positions. The goal is to become the trusted custodian of your customers’ data. This global survey shows that consumers trust in data sharing with commercial institutions in the following order (1) banks/credit card companies (46%), (2) Telco (22%), (3) Social Networks (10%) , (4) Retailer (10%), (5) Search engine (9%) and (7) Media company (7%). This indicates that certain types of businesses have stronger starting position on a data bank strategy than others.
No matter what you do, the competition will act, so the least a company should do is to be a fast follower on the coming changes. I believe the alternative passive approach for consumer data driven companies will eventually lead to bankruptcy. The reason for that is that data activation will become so important for future revenues and growth.
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