Response to discussion Paper on innovative uses of consumer data by financial institutions
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As such, financial advisors establish the first contact with consumers and collect data on consumer profiling, as well as data on consumers which are required under the legal framework. Accordingly, financial advisors have a joint responsibility with the financial intermediary on whose behalf they act with regard to collecting, processing and safe-keeping of data.
• external official sources (for instance, data from the Central Credit Register operated by the Bank of Italy);
• other external sources (aggregated data and data on customer clustering, e.g. from Google, Facebook and LinkedIn);
• internal sources. This is the case of data collected by means of all the activities, following customer acquisition, which are aimed at placing related products and services. These activities may be carried out by different intermediaries and institutions, under specific distribution agreements.
Benefit B2 (consumers save money because they are offered targeted discounts by their financial institutions) is realistic if information transparency is ensured, thereby enabling customers to make informed choice. As outlined in the chapter describing risks, cases of information asymmetry between consumers and financial institutions are still too frequent, also in light of the low level of financial literacy among European citizens. Indeed, there is often an unrealistic targeting of unsuitable products to consumers, especially when the consumer makes her/his decision without the help of professionals, by means of mere automated tools (robo-advisors). A transparent and clear split is needed so as to differentiate between the evidence from assessments made by means of algorithms and the evaluation resulting from a thorough profiling (e.g., profiling made by a financial advisor).
Benefit B3 (enhanced creditworthiness assessments of consumers by means of data from social media) is utopian. The assessment of data from social media is indeed characterised by wide subjective elements that may turn into unrealistic results. Conversely, social networks may be actually used by financial institutions to detect and prevent crimes by consumers. Particularly, an effective and adequate enforcement of relevant legislation contributes to fraud prevention.
Benefits to financial institutions.
The benefits outlined in the Discussion Paper are exhaustive.
On the other hand, consumers should become more aware, pay extreme attention to all the documents they sign and always ask for a copy of these documents.
There is another instance of risk relating to the mere use of algorithms for the provision of products and services, without the intervention of professionals: as a potential result of this shortcoming, consumers are provided with unsuitable products and services. Indeed, technology is extremely useful as a supporting tool, but it should be used in light of common sense: consumer education is needed and specific attention must be paid to the risk of hyper-consumerism (a risk that may be amplified by the spread of technological devices).
We also consider that it is necessary to avoid espousing the US legislation on privacy, whereby the consumer is required to expressly state if she/he does not want her/his data to be used by the financial institution.
It is also important to build on recent experience: let’s consider the case of subprime mortgages (assessment of creditworthiness not corresponding to the real characteristics of the borrower, whereby these mortgages had originated opaque securities whose rating was clearly distorted); this phenomenon is at the origin of one of the most devastating financial crisis of our time.
1. In what capacity (i.e. consumer, financial institution, technology providers, etc.) have you had experience with innovative uses of consumer data?
ANASF represents financial advisors authorised to offer investment services outside the premises of the financial intermediaries on whose behalf they act and registered in the public register. The register is kept by OCF (Organismo di vigilanza e tenuta dell'albo unico dei consulenti finanziari, https://www.albopf.it/web/area_pubblica/base/home).As such, financial advisors establish the first contact with consumers and collect data on consumer profiling, as well as data on consumers which are required under the legal framework. Accordingly, financial advisors have a joint responsibility with the financial intermediary on whose behalf they act with regard to collecting, processing and safe-keeping of data.
2. Based on your knowledge, what types of consumer data do financial institutions use most?
Consumer data on: i) creditworthiness; ii) consumer’s knowledge and experience (especially pursuant to MiFID or anti-money laundering law); iii) consumer clustering.3. Based on your knowledge, what sources of consumer data do financial institutions rely on most?
Data from:• external official sources (for instance, data from the Central Credit Register operated by the Bank of Italy);
• other external sources (aggregated data and data on customer clustering, e.g. from Google, Facebook and LinkedIn);
• internal sources. This is the case of data collected by means of all the activities, following customer acquisition, which are aimed at placing related products and services. These activities may be carried out by different intermediaries and institutions, under specific distribution agreements.
4. Based on your knowledge, for what purposes do financial institutions use consumer data most?
Financial institutions use consumer data mainly to manufacture products focused on consumers’ needs (brand development) and cluster consumers in order to identify target markets.5. How do you picture the evolution of the use of consumer data by financial institutions in the upcoming years? How do you think this will affect the market?
Data will be used to improve customer clustering to define with greater precision product class for each target. We may envision an even greater use of data acquired from social networks, in light of the exponential increase in the use of these tools.6. Do you consider the potential benefits described in this chapter to be complete and accurate? If not, what other benefits do you consider should be included?
Benefits to consumers.Benefit B2 (consumers save money because they are offered targeted discounts by their financial institutions) is realistic if information transparency is ensured, thereby enabling customers to make informed choice. As outlined in the chapter describing risks, cases of information asymmetry between consumers and financial institutions are still too frequent, also in light of the low level of financial literacy among European citizens. Indeed, there is often an unrealistic targeting of unsuitable products to consumers, especially when the consumer makes her/his decision without the help of professionals, by means of mere automated tools (robo-advisors). A transparent and clear split is needed so as to differentiate between the evidence from assessments made by means of algorithms and the evaluation resulting from a thorough profiling (e.g., profiling made by a financial advisor).
Benefit B3 (enhanced creditworthiness assessments of consumers by means of data from social media) is utopian. The assessment of data from social media is indeed characterised by wide subjective elements that may turn into unrealistic results. Conversely, social networks may be actually used by financial institutions to detect and prevent crimes by consumers. Particularly, an effective and adequate enforcement of relevant legislation contributes to fraud prevention.
Benefits to financial institutions.
The benefits outlined in the Discussion Paper are exhaustive.
7. Are you aware of any barriers that prevent financial institutions from using consumer data in a beneficial way? If so, what are these barriers?
We do not see barriers for financial institutions. The only limits are those established by privacy protection laws, but we agree with these limits.8. Do you consider the potential risks described in this chapter to be complete and accurate? If not, what other risks do you consider should be included?
The general outline of risks is exhaustive. To avoid most of the risks to consumers, it would be necessary to prescribe by law a duty to provide, upon client’s request and by means of a specific form, all the data on the consumer collected by the financial institution (this requirement should also apply to non-financial data, e.g. those collected from social networks). Accordingly, the consumer could examine, assess, complete and rectify her/his data sheet, which would become portable and transferable to other financial institutions. In this way financial institutions could promote consumer education, in a context of maximum transparency.9. Have you observed any of these risks materialising? If so, please provide examples.
Many cases of everyday life entail information asymmetry and consumers “under siege” by invasive sales proposals (consumers that find it difficult to get rid of phishing and spam). There exist also many cases of improper use of data or access to data without the informed consent of the consumer. To solve these problems, it is simply needed to implement the solution envisaged in our previous answer. It is also necessary to remind consumers that they can always submit a request for information to public institutions which collect data, as these institutions (for example, the Central Credit Register operated by the Bank of Italy) are always under the duty to provide an answer. The same request can be addressed to the so-called controller who is in charge of data processing and is mandatorily identified by each financial institution.On the other hand, consumers should become more aware, pay extreme attention to all the documents they sign and always ask for a copy of these documents.
There is another instance of risk relating to the mere use of algorithms for the provision of products and services, without the intervention of professionals: as a potential result of this shortcoming, consumers are provided with unsuitable products and services. Indeed, technology is extremely useful as a supporting tool, but it should be used in light of common sense: consumer education is needed and specific attention must be paid to the risk of hyper-consumerism (a risk that may be amplified by the spread of technological devices).
We also consider that it is necessary to avoid espousing the US legislation on privacy, whereby the consumer is required to expressly state if she/he does not want her/his data to be used by the financial institution.
It is also important to build on recent experience: let’s consider the case of subprime mortgages (assessment of creditworthiness not corresponding to the real characteristics of the borrower, whereby these mortgages had originated opaque securities whose rating was clearly distorted); this phenomenon is at the origin of one of the most devastating financial crisis of our time.