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Document 222 of 575.

May 28, 2000, Sunday

SECTION: Business; Ed. Final; Pg. 2G

LENGTH: 1704 words

HEADLINE: BANKS RELY ON TRUST WHEN SHARING DATA

BYLINE: By Hugh L. McColl

BODY:

There is a banking topic that I think is widely misunderstood and, therefore, could benefit from some illumination. That issue is privacy.

As the dawn of our information age ripens ever more quickly into the new day we've anticipated for so long, we have become uneasy. We want the convenience and efficiency technology provides, but we often recoil from the anonymity our modern machines impose on us. We want to make a new global community out of the Internet and the World Wide Web, but we worry about who will come to know us in this new community - and what they will do with their knowledge. In sum, we want what people have always wanted: freedom and security, open seas and safe passage, to have our cake and eat it too. We want what we want, but we're not sure what it will cost.

Privacy is on everyone's mind, and means something different to everyone you ask. And yet, all of a sudden, many lawmakers seen convinced their proposed remedies for customer privacy concerns will soothe our fears, banish our doubts and cast out our demons. Frankly, I'm not convinced. I think the privacy issue is more complex than politicians, consumer activists believe. I think the potential for negative unintended consequences is huge. And I think that, as usual, if we act rashly we'll continue to regret it. When we ask customers what they want from their bank, they seldom talk about technology. They talk about expertise, breadth of products and services, knowledgeable, helpful service associates, convenience, responsiveness, accuracy and efficiency. When customers do talk about technology, it is a tool that helps them get more of what they want from their bank. And that's how we look at new technology: as a tool that enables us to give our customers more of what they want - when, how and where they want it.

Thousands of years ago, when our ancestors began to move from an oral tradition to writing, someone surely objected. Obviously, written communications are subject to interception, misuse and abuse in ways that private, verbal communications are not.

And when Gutenberg invented the printing press, surely someone observed that it would now be much harder to control information around the world. Now anyone could print a book, forge documents en masse, or flood the community with misinformation.

And then, a little more than a hundred years ago, the telephone came along. And when people realized that the government, a detective or a criminal could tap your line and listen to your most intimate conversations, I'm sure some people said: "Sure, it's kind of neat, but is seems so insecure. All your information is just out there. I've been getting along fine without it - why risk it now? I'm going to stick to letter-writing."

Ironically, this is the same thing many people now say about e-mail and e- commerce - except instead of sticking to letters, we now say we're going to stick to the telephone, the shopping mall or the teller window. My point is, the technology is new. Of course many people will continue to get along without it for some time. But it's not going away, and we're not going to move backwards. The Information Age is upon us, and we will learn to balance our need for privacy with our need to be connected. We have no choice.

That said, there is no denying that people's fears and concerns about privacy are very real, and they have very real consequences for business. In fact, I share many of these concerns - putting my credit card number out on the Internet makes me as nervous as anyone. What is critical to the financial services industry - and to our customers, if we are to serve them the way they tell us they want to be served - is that we preserve the ability to freely share customer information inside the company, across lines of business. This is what is referred to as "affiliate sharing."

Imagine that you are a customer of a bank. You have a checking account, a mortgage and a credit card. You are at a branch, and you'd like to pay your credit card bill, but they won't accept it. They're on different systems. You have to mail it in. The next day you're preparing your taxes and you want to know how much you paid in interest on your mortgage loan, so you grab the nearest thing you can find with a bank logo on it and call customer service. But you've grabbed your checking account statement, or your credit card bill, and those customer service people can't help you. They don't know anything about your mortgage. Now, let's say you want to buy a new car. The bank says you'll have to fill out a series of lengthy applications, duplicating information we already have about you in at least three other places. Or, let's say you're moving, and you have to make five phone calls to get your address changed. Or you want to tell us about your direct marketing preferences, but you have to tell us five times.

You are exasperated, and rightly so. But you won't blame the politician who passed a law supposedly to look out for your best interest. You will simply conclude that the bank can't get its act together.

In fact, when we interview customers who have left us, what we hear again and again is, "You never acted like you knew me," and "No one in the bank seems to know what anyone else is doing." There is only one way we can know our customers and functions as one company - and that is by managing information across the company. If we are prevented from sharing information internally, customers are the ones who will lose.

The solution to the debate over affiliate sharing that is offered most often by consumer activists is "opt-in," which means exactly what it says: Consumers would have to actively state a preference for companies to freely manage information about them internally. In the absence of such an active declaration, customers would have to interact with each department or business line within the bank as a separate company.

The problem is, it doesn't work. When several European countries tried an opt-in program, banks spent millions on campaigns to educate the public about their choices and encourage participation. The response rate - yea or nay - was in the neighborhood of 60 percent.

By contrast, We have been required over the past two years to allow customers to opt-out of an information sharing practice called "non- experience" information sharing, which simply means information that was provided by the customer but not directly generated by the bank's experience with the customer. This includes information provided on applications, credit reports, and the like. We mailed out 47 million notices to 30 million households - at tremendous cost - and less that two-tenths of 1 percent of our customers exercised their right to opt-out.

The other 99.8 percent agreed to let us manage their information across the company. In the opt-in scenario, as many as 40 percent of customers would be denied benefits they desired from their financial institutions simply because they misplaced their response card, forgot to mail it in or just never got around to it. This is a perfect example of how good intentions that lead to ill-considered actions result in serious unintended consequences.

The other great threat to customers of institutions that operate across state lines is a proliferation of state legislation on privacy issues. This point should be self-evident. In addition to the negative effect that every one of these individual laws would have on customer service, the administrative structures we would have to erect to serve customers across the country with different privacy rules in every state would be untenable. And customers would bear the cost.

The financial modernization bill of 1999 includes several privacy measures that will go into effect nationwide later this year - privacy provisions that were added to the bill and that went far beyond any existing protections. It is our great hope that legislators and regulators around the country - at the state and federal levels - will exercise prudence and restraint until we have had a chance to gauge how well these new rules work. The temptation to exploit consumers' privacy concerns for political gain is great. But in the end, the public will not be served by rash, ill-considered action.

Perhaps the most disturbing trend in our national discourse about consumer privacy is that we have painted the relationship between consumers and financial institutions as adversarial. Financial service companies certainly can claim their share of the blame. When one of us breaches the public trust, the public understandably grows wary of corporate power.

In matters of customer information and privacy, we ask two questions: " Would I be comfortable if my personal information was handled in the way I am proposing we handle our customers' information?" And, "Are we proposing anything we would be uncomfortable telling our customers about?" In all cases, the answer to the first question must be "yes," and to the second question, " no."

We are doing all we can to earn and keep our customers' trust. And at the end of the day, trust is what business is all about - especially ours. Banks always have been the most trusted of business institutions, and continue to hold this honored position today.

In fact, the concerns we face today about privacy and the security of personal information are as old as civilization itself. Whether business is conducted with idle conversation over a lunch counter at a corner deli or at the speed of light over the World Wide Web . . . whether a transaction is sealed by a handshake or a digital certificate . . . whether you hand over your Social Security number to a teller in a window or to an electronic form on a secure server . . . we all come together to do business in communities of trust.

Within these communities of trust - physical, virtual or otherwise - we must resist the allure of easy solutions, and work together to ask and answer the tough questions around our seemingly conflicting desires for freedom and security . . . for open seas and safe passage. Only then will we find our way in this new age of information.

NOTES:
Editor's Note: The Bank of America, based in Charlotte, N.C., has more retail and commercial customers in the country than any other bank. In Atlanta earlier this month, Chief Executive Hugh L. McColl, talked about the growing controversy of banks sharing customer information. What follows is a transcript of remarkss he made at the Annual Meeting of the Society of American Business Editors and Writers.
OPINION PAGE

GRAPHIC: Photo
"What is critical to the financial services industry...is that we preserve the ability to freely share customer information inside the company, across lines of business," says Hugh L. McColl, chief executive officer of Bank of America. By Kathy Willens / Associated Press / 1998. FILE: ARCHIVE

LOAD-DATE: May 31, 2000

Document 222 of 575.


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