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Data Governance 2.0 for Financial Services

The tempo of change for data-driven business is increasing, with the financial services industry under particular pressure. For banks, credit card, insurance, mortgage companies and the like, data governance must be done right.

Consumer trust is waning across the board, and after several high-profile data breaches, trust in the way in which organizations handle and process data is lower still.

Equifax suffered 2017’s largest breach and the fifth largest in history. The subsequent plummet in stock value should have sent a stark warning to other financial service organizations. As of November, the credit bureau reported $87.5 million in expenses following the breach, and the PR fallout plummeted profits by 27 percent.

But it could be said that Equifax was lucky. If the breach had occurred following the implementation of the General Data Protection Regulation (GDPR), it also would have been hit with hefty sanctions. Come May of 2018, fines for GDPR noncompliance will reach an upper limit of €20 million or 4 percent of annual turnover – whichever is greater.

Data governance’s purpose – knowing where your data is and who is accountable for it – is a critical factor in preventing such breaches. It’s also a prerequisite for compliance as organizations need to demonstrate they have taken reasonable precautions in governing.

Equifax’s situation clearly implies that financial services organizations need to review and improve their data governance. As a concept, data governance for regulatory compliance is widely understood. Such regulations were introduced a decade ago in response to the financial crisis.

However, data governance’s role goes far beyond just preventing data breaches and meeting compliance standards.

Data Governance 2.0 for Financial Services

Data governance has struggled to gain a foothold because the value-adds have been unclear and largely untested. After new regulations for DG were introduced for the financial services industry, most organizations didn’t bother implementing company-wide approaches, instead opting to leave it as an IT-managed program.

So IT was responsible for cataloging data elements to support search and discovery, yet they rarely knew which bits of data were related or important to the wider business. This resulted in poor data quality and completeness, and left data and its governance siloed so data-driven business was hard to do.

Now data-driven business is more common – truly data-driven business with data at the core of strategy. The precedent has been set thanks to Airbnb, Amazon and Uber being some of the first businesses to use data to turn their respective markets on their heads.

These businesses don’t just use data to target new customers, they use data to help dictate strategy, find new gaps in the market, and highlight areas for performance improvement.

With that in mind, there’s a lot the financial services industry can learn and apply. FinTech start-ups continue to shake up the sector, and although the financial services industry is a more difficult industry to topple, traditional financial organizations need to innovate to stay competitive.

Alongside compliance, the aforementioned purpose of DG – knowing where data is stored and who is accountable for it – is also a critical factor in fostering agility, squashing times to market, and improving overall business efficiency, especially in the financial services industry.

In fact, the biggest advantage of data governance for financial services is making quality and reliable data readily available to the right people, so the right decisions can be made faster. Good DG also helps these companies better capitalize on revenue opportunities, solve customer issues, and identify fraud while improving the standard for reporting on such data.

These benefits are especially important within financial services because their big decisions have big financial impacts. To make such decisions, they need to trust that the data they use is sound and efficiently traceable.

Such data accountability is paramount. To achieve it, organizations must move away from the old, ineffective Data Governance 1.0 approach to the collaborative, outcome-driven Data Governance 2.0.

This means introducing data governance to the wider business, not just leaving it to IT. It means line-of-business managers and C-level executives take leading roles in data governance. But most importantly, it means a more efficient approach to data-driven business for increased revenue. A BCG study implies that financial services could be leaving up to $30 billion on the table.

Although the temptation to just meet regulatory compliance might be strong, the financial services industry clearly has a lot to gain from taking the extra step. Therefore, new regulations don’t have to be seen as a burden but as a catalyst for greater, proactive and forward-thinking change.

For more best practices in business and IT alignment, and successfully implementing data governance, click here.

Data governance is everyone's business

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Digital Trust: Earning It and Keeping It with Data Governance

Digital trust can make or break a brand.

Amazon understood this concept early on. When the company first launched as an online bookseller in 1994, consumer confidence in online shopping was low, to say the least.

Exclusively competing with local bookstores, Amazon and many e-tailers throughout the 90s and early 2000s had to work to create trust in online shopping. Their efforts paid off, ushering in a new era and transforming the way we all shop today.

Amazon is a good example of digital trust making a brand. But data breaches are a telling metric of how lack of digital trust can break a brand.

Frequency of Data Breaches and Its Impact on Consumer Trust

Since Privacy Rights Clearinghouse began tracking data breaches in 2005, 7,731 have been reported, with an estimated 1 billion individual records breached. And that estimate is conservative. While a data breach may have been reported, the number of individual records involved isn’t always known.

The Ponemon Institute’s 2017 Cost of Data Breach Study suggests the odds of suffering a data breach within the year are as high as one in four. As if the growing number of data breaches isn’t enough to contend with, considerable evidence suggests their impact is increasing too.

Although the Ponemon Institute study found the financial cost of a data breach fell by 10 percent between 2016 and 2017, the “financial cost” doesn’t account for the various intangible effects of a data breach that can, and do, add up.

For example, the reputational cost more than likely outweighs the clean-up costs of a high-profile data breach like the one Equifax suffered recently. That incident is believed to have reduced Equifax’s market value by $3 billion, as share prices tumbled by as much as 17 percent.

In fact, any company disclosing a data breach saw its average stock price fall by 5 percent, according to Ponemon. And 21 percent of consumers included in its study reported ending their relationships with a company that had been breached. Why? They lost trust in those businesses.

Perhaps the most relevant finding here is that “organizations with a poor security posture experienced an increase of up to 7 percent customer churn, which can amount to millions in lost revenue.” Clearly this shows the correlation between digital trust and customer retention. It also demonstrates that the consumer is aware of such matters.

That’s why digital trust poses an opportunity. Yes, consumer trust is declining. Yes, high-profile breaches are increasing. But these are alarm bells, not death knells.

Businesses can use the issue of digital trust to their advantage. By making it a unique value proposition reinforced by a solid data governance (DG) program, you can set yourself apart from the competition – not to mention avoid GDPR penalties.

Building digital trust

Building Digital Trust Through Data Governance

In today’s digital economy, the consumer holds the power with more avenues of research and reviews to inform purchase decisions. Even in the B2B world, studies indicate that 47 percent of buyers view three to five pieces of content before engaging with a sales rep.

In other words, the consumer is clued in. But if a data breach occurs, it doesn’t have to lead to customer losses. It could actually reinforce customer loyalty and produce an uptick in new customers – if you are proactive in your response and transparent about your procedures for data governance.

Of course, consumer trust isn’t built overnight. It’s a process, influenced by sound data governance practices and routine demonstrations of said practices so trust becomes part of your brand.

While considering the long-term payoff, it’s also worth noting the advantages a data governance program has in the short-term. For better or worse, short-term positive outcomes are what business leaders and decision- makers want to see.

When it comes to both digital trust and business outcomes, DG’s biggest advantage is ensuring an organization can first trust its own data.

In addition to helping an organization discover, understand and then socialize its mission-critical information for greater visibility, it also improves the enterprise’s ability to govern and control data. You literally get a handle on how you handle your data – and not just to help prevent breaches.

Greater certainty around the quality of data leads to faster and more productive decision-making. It reduces the risk of misleading models, analysis and prediction, meaning less time, money and other resources are wasted.

Additionally, the very data used in such models and analysis benefits from improved clarity. Meaning what’s relevant is more readily discoverable, speeding up the entire strategic planning and decision-making process.

So, proactive and proficient data governance doesn’t just mitigate risk, it fundamentally improves operational performance and accelerates growth.

For more data best practices click here, and you can stay up to date with our latest posts here.

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