Impact of GDPR on Banks in Slovakia – Marketing Approach. Part I.
This paper, through examining the Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation – short GDPR), aims to demonstrate its significance in financial sector along with the impact on complex management of marketing activities inside specific financial institutions. In the theoretical part of this contribution brief history of data protection and evolution of concept of GDPR will be explained. Main principles and innovations that are of key importance for future positive developments in the field will be discussed with emphasis on relationship between banks and direct marketing. Additionally, selected results of the primary research oriented on personal data protection from consumers’ point of view in Slovakia will be presented (online questionnaire was fulfilled by 355 respondents). Further we will try to identify the challenges bank have to meet while adhering towards the new directive.
Marketing communication through direct marketing tools, if it is not requested, can harass the recipient. The recipient may also feel worried about the misuse of his or her personal data and seek to obtain information about how the organization has come to its personal data. The basic law, which provides for the protection of personal data in Slovakia, is the Constitution of the Slovak Republic, according to which “everyone has the right to protection against unauthorized gathering, disclosure or other misuse of data about their person”. In advanced countries of the world, it is obvious that companies offer customer address databases for rent or provide them for processing so- brokerage companies. In real Slovak conditions, there is a concern about the misuse of the data provided in this respect. In the case of private individuals, there is also a high sensitivity to commonly available basic information, such as an address. 2018 will certainly bring many changes and challenges for the banking sector. At the very beginning the new PSD2 payment regulation come into force. The months after that will bring new requirements for personal data processing under GDPR and ePrivacy (the current state of this legislation is discussed). Štarchoň (2017, p. 95) says that the new Payment Services Directive 2 (PSD2) will bring the new complexity and dimensions into today´s function of many financial institutions. Banks should be prepared not only to invest their own capacities in this trend, but also to closely monitor the emerging startups, analyse the products they bring to market and evaluate them not only in terms of their future impact on the market but also in terms of their usability in marketing. The new rules will help build relationships with customers based on greater trust and transparency between customers and banks.
GDPR and Data Protection in Slovakia
Personal data protection is covered by Act no. 122/2013 Coll. (until 24 May 2018) on the protection of personal data and 18/2018 Coll. on the protection of personal data Coll. (effective 25 May 2018). On 1 September 2002, the Office for the Protection of Personal Data set up to monitor the protection of personal data in public or private sector organizations. The Office ensures the independence of the state supervision over the protection of personal data and increases the standard of legal certainty of citizens of the Slovak Republic in the field of personal data protection. Individual data relating to individual natural or legal persons also protect Law no. 322/1992 Coll. on State Statistics.
After four years of preparation and debate the GDPR was finally approved by the EU Parliament on 14 April 2016. The regulation took effect after a two-year transition period and, unlike a Directive it does not require any enabling legislation to be passed by government; meaning it came into force in May 2018. The EU General Data Protection Regulation (GDPR) replaces the Data Protection Directive 95/46/EC and was designed to harmonize data privacy laws across Europe, to protect and empower all EU citizens’ data privacy and to reshape the way organizations across the region approach data privacy.
The aim of the GDPR is to protect all EU citizens from privacy and data breaches in an increasingly data-driven world that is vastly different from the time in which the 1995 directive was established. Although the key principles of data privacy still hold true to the previous directive, many changes have been proposed to the regulatory policies. The GDPR sets out seven key principles: Lawfulness, fairness and transparency; Purpose limitation; Data minimisation; Accuracy; Storage limitation; Integrity and confidentiality (security) and Accountability. These principles should lie at the heart of your approach to processing personal data (Office for Personal Data Protection 2018).
Figure 1: Overview of 7 principles of GDPR
Source: joinlegal.be (2017)
Arguably the biggest change to the regulatory landscape of data privacy comes with the extended jurisdiction of the GDPR, as it applies to all companies processing the personal data of data subjects residing in the Union, regardless of the company’s location. Previously, territorial applicability of the directive was ambiguous and referred to data process ‘in context of an establishment’. This topic has arisen in a number of high profile court cases. GDPR makes its applicability very clear – it will apply to the processing of personal data by controllers and processors in the EU, regardless of whether the processing takes place in the EU or not. The GDPR will also apply to the processing of personal data of data subjects in the EU by a controller or processor not established in the EU, where the activities relate to: offering goods or services to EU citizens (irrespective of whether payment is required) and the monitoring of behaviour that takes place within the EU. Non-Eu businesses processing the data of EU citizens will also have to appoint a representative in the EU (eugdpr.org 2018).
Under GDPR organizations in breach of GDPR can be fined up to 4% of annual global turnover or €20 Million (whichever is greater). This is the maximum fine that can be imposed for the most serious infringements e.g. not having sufficient customer consent to process data or violating the core of Privacy by Design concepts. There is a tiered approach to fines e.g. a company can be fined 2% for not having their records in order (Article 28 of Regulation), not notifying the supervising authority and data subject about a breach or not conducting impact assessment. It is important to note that these rules apply to both controllers and processors – meaning ‘clouds’ will not be exempt from GDPR enforcement.
The conditions for consent have been strengthened, and companies will no longer be able to use long illegible terms and conditions full of legalese, as the request for consent must be given in an intelligible and easily accessible form, with the purpose for data processing attached to that consent. Consent must be clear and distinguishable from other matters and provided in an intelligible and easily accessible form, using clear and plain language. It must be as easy to withdraw consent as it is to give it.
Under the GDPR, breach notification will become mandatory in all member states where a data breach is likely to „result in a risk for the rights and freedoms of individuals“. This must be done within 72 hours of first having become aware of the breach. Data processors will also be required to notify their customers, the controllers, “without undue delay” after first becoming aware of a data breach.
Part of the expanded rights of data subjects outlined by the GDPR is the right for data subjects to obtain from the data controller confirmation as to whether or not personal data concerning them is being processed, where and for what purpose. Further, the controller shall provide a copy of the personal data, free of charge, in an electronic format. This change is a dramatic shift to data transparency and empowerment of data subjects.
Also known as Data Erasure, the right to be forgotten entitles the data subject to have the data controller erase his/her personal data, cease further dissemination of the data, and potentially have third parties halt processing of the data. The conditions for erasure, as outlined in Article 17 of Regulation, include the data no longer being relevant to original purposes for processing, or a data subjects withdrawing consent. It should also be noted that this right requires controllers to compare the subjects´ rights to „the public interest in the availability of the data“ when considering such requests.
GDPR introduces data portability – the right for a data subject 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.
Privacy by design as a concept has existed for years now, but it is only just becoming part of a legal requirement with the GDPR. At its core, privacy by design calls for the inclusion of data protection from the onset of the designing of systems, rather than an addition. More specifically „The controller shall..implement appropriate technical and organisational measures..in an effective way.. in order to meet the requirements of this Regulation and protect the rights of data subjects“. Article 23 of Regulation calls for controllers to hold and process only the data absolutely necessary for the completion of its duties (data minimisation), as well as limiting the access to personal data to those needing to act out the processing.
From the official paper published by European Commission (2018b) is clear that controllers are required to notify their data processing activities with local Data Protection Authorities (DPAs), which, for multinationals, can be a bureaucratic nightmare with most Member States having different notification requirements. Under GDPR it will not be necessary to submit notifications / registrations to each local DPA of data processing activities, nor will it be a requirement to notify / obtain approval for transfers based on the Model Contract Clauses (MCCs). Instead, there will be internal record keeping requirements, as further explained below, and Data Protection Officers (DPO) appointment will be mandatory only for those controllers and processors whose core activities consist of processing operations which require regular and systematic monitoring of data subjects on a large scale or of special categories of data or data relating to criminal convictions and offences. Importantly, the DPO:
1. Must be appointed on the basis of professional qualities and, in particular, expert. knowledge on data protection law and practices.
2. May be a staff member or an external service provider.
3. Contact details must be provided to the relevant DPA.
4. Must be provided with appropriate resources to carry out their tasks and maintain their expert knowledge.
5. Must report directly to the highest level of management.
6. Must not carry out any other tasks that could results in a conflict of interest.
GDPR and Banking Sector
According to Piwik PRO, it would seem that such declarations should be accompanied by serious preparations for compliance. In this case, however, awareness isn’t translating into real action. Or at least this is what recent surveys show. According to a survey cited in a recent Financial Times article, 76 percent of IT executives at financial services firms (including banks) believe they face serious challenges in becoming compliant with GDPR.
Karolina Lubowicka from Piwik PRO (2017) recently found out that the conclusions of the recently published Symantec’s „State of European Data Privacy Survey“ show that many businesses are not ready for new regulation. This study gathered information from more than 900 business and IT decision makers in France, Germany, and the United Kingdom. It reveals that the majority of European businesses are concerned about compliance with the new GDPR regulation, and nearly one in four of them predict that they won’t be fully compliant when the regulation enters into force. Banks should be aware that not being ready for GDPR can result in administrative fines which can go as high as €20 million or 4 percent of the global annual turnover of a company. A report from the data security solutions company AllClear ID states that European banks alone could face fines totalling €4.7 billion in the first three years of the General Data Protection Regulation. That’s roughly the annual budget of Malta or Iceland.
Moreover, banks also risk the possibility that affected individuals make claims that are significantly higher than fines resulting from regulatory breaches. Aside from the monetary effect, a gap in the data protection framework of a bank can lead to a significant loss of reputation if it is unveiled. Especially banks, which are heavily reliant on the customers’ trust, need to protect their reputation and use it as an asset to face the increasing competition from fintech companies and alleviate the migration of existing customers. In total, estimated costs for each record of compromised data typically range from 150 to 200 €—including direct costs associated with detection, notification, restoration, forensics as well as indirect costs reflecting the risk of law suits, loss of consumer confidence and subsequent loss of funding. Therefore, it is extremely crucial to address the changes arising from the GDPR.
According to BankingHub (2017), several aspects of special relevance for the organization, processes and systems of a bank are identified, which need to be addressed in order to achieve compliance with the GDPR. Banks need to establish a privacy office and privacy change agenda as well as senior management reporting on personal data protection, develop and implement a target operating model for data protection governance with policies and a framework including organization, processes and roles / responsibilities (controller, data protection officer, etc.) and finally roll out a defined, bank-wide privacy organizational setup, implement committees and integrate new roles in the existing network. Afterwards there are certain steps to be implemented in the area of processes, for example implementation of processes for relevant personal data scope identification (personal data required by regulations vs. non-required), definition and implementation of processes for customer consent management, disclosure of stored personal data, correction of wrong personal data, right to erasure and portability and design, implement and document privacy impact assessments and train respective persons in the relevant processes. And finally an update and control on systems is crucial in form of review and adaption of current IT architecture regarding data storage, transformation and processing of personal data to fulfil GDPR requirements, expandition of Metadata Management (incl. Metadata Management Systems) and establish / expand data lineage to comply with data protection requirements and performance a personal data inventory the creation of a harmonized business glossary and mapping of all personal data.
The three core areas are supplementary and each of them needs to be covered in order to become compliant. Even the best banking systems and processes are not able to compensate for a gap in the organizational structure of the bank, such as a lack of the mandatory data protection officer. By breaking down the high-level requirement analysis to a more practical approach, several key GDPR articles with the highest immediate relevance for the banking sector can be identified.
Figure 2: Overview of selected GDPR requirements
Source: General Data Protection Regulation by BankingHub (2017)
Marketing and GDPR
According to Tapp et al. direct marketing is a method of marketing based on individual customer records held on a database. These records are the basis for marketing analysis, planning, implementation of programmes and control of all this activity. So where direct marketing is concerned, GDPR completely changes the way businesses think about handling data. Direct marketers will need to demonstrate how their organization meets the lawful conditions and principles of GDPR. If an organization cannot prove how they have obtained consent the likelihood is that they will be fined. The collection of data needs to be relevant for the purpose. This means if company runs a campaign or competition, they can only use the information for that purpose. Creating another purpose to use that information will need further consent from the data subject. This represents complication for marketing as a common practice has been to grow databases using these methods.
A marketing database can best be pictured as an electronic version of an office filling cabinet, holding records of customers. Imagine each customer´s record held on a card, detailing the customer´s personal details, transactions (sales) and communication history with the particular company. The cards are held in various files according to, say, which products the customer has bought. The entire set of records is cross-referenced against the other files so that customer can be selected according the different characteristics. So that means that database is a collection of data records in a list that can be manipulated by software. A data record is the entire set of information that is associated with one customer. A data field is one term of data within record: for example, a name, one line of an address, the number of a type of product bought and so on (Tapp et al. 2014). In these terms they will need to be cleansed and reviewed to ensure organization can identify if consent has been granted lawfully and fairly, whether it is being used for explicit and legitimate purposes, what data has been collected, and the accuracy of that information.
Experts from Smartinsights (2017) say that consent plays a very big part in digital and direct marketing as the Data Controller and processor has to adhere to a clear set of boundaries. The rule of thumb is that consent must be given and not assumed. Corporations need to update their websites and change the language they use to clarify the purpose of collecting the data and what it is going to be used for. Then there is a physical action such as having an opt-in box so they can record how the data subject gave consent. In the past, the purposes of using personal data would have been written in lengthy legal and corporate jargon. However, in GDPR the purpose has to be unambiguous, clear and simple. If it is not then it will not be accepted. For clarification Personal Data is name, an identification number, location data, an online identifier or to one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social identity of that natural person. If we are focusing on online identifiers, IP addresses, cookies, mobile IPs and even search engines will fall into scope of GDPR.
According to SmartInsights (2017) a lot of companies are terming GDPR as the biggest shake up in data protection in 20 years. The very nature of digital marketing is monitoring behaviour by tracking individuals online to create profiles, in particular to analyse or predict aspects concerning the natural person’s personal preferences, interests, reliability, behaviour, location or movements. Territorial scope (Article 3 of Regulation) specifically applies to the monitoring of behaviour. For a lot of marketers there is a significant possibility that they will need to reassess all of their databases and best practices to ensure they meet with the regulation.
End of Part I.
Literatúra/List of References
 BankingHub, 2017. General Data Protection Regulation, BankingHub, 2017. [online]. [cit. 2018.05.19]. Available at: <https://www.bankinghub.eu/banking/finance-risk/general-data-protection-regulation>
 Datalan, 2018. General Data Protection Regulation. Kybernetická bezpečnosť pre finančné inštitúcie. Datalan, 2018. [online]. [cit. 2018.05.19]. Available at: <https://www.datalan.sk/tmp/asset_cache/link/0000030888/Bezpecnost%20Financne%20institucie_brozura_web.pdf>
 European Commission, 2018a. 2018 reform of EU data protection rules. European Commission, 2018. [online]. [cit. 2018.05.19]. Available at: <https://ec.europa.eu/commission/priorities/justice-and-fundamental-rights/data-protection/2018-reform-eu-data-protection-rules_en>
 European Commission, 2018b. Data protection. European Commission, 2018b. [online]. [cit. 2018.05.19]. Available at: <https://ec.europa.eu/info/law/law-topic/data-protection_en>
 European Union Law, 2016. Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data and repealing Directive 95/46/EC (General Data Protection Regulation) (Text with EEA relevance). European Union Law, 2016. [online]. [cit. 2018.05.19]. Available at: <https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2016.119.01.0001.01.ENG&toc=OJ:L:2016:119:TOC>
 i-Scoop, 2018. Data processing principles: the 9 GDPR principles relating to processing personal data. i-Scoop, 2018. [online]. [cit. 2018.05.19]. Available at: <https://www.i-scoop.eu/gdpr/gdpr-personal-data-processing-principles/>
 Joyn, 2017. Data Protection – Impacts of GDPR in the Banking & Financial Sectors. Joyn, 2018. [online]. [cit. 2018.05.19]. Available at: <https://www.joynlegal.be/images/actualite/Newsletter%20GDPR%20-%20JOYN%20Legal.PDF>
 eugdpr.org, 2018. Key changes of GDPR. eugdpr.org, 2018. [online]. [cit. 2018.05.19]. Available at: <https://www.eugdpr.org/the-regulation.html>
 Office For Personal Data Protection, 2018. Directive of European Parliament. Office For Personal Data Protection, 2018. [online]. [cit. 2018.05.19]. Available at: <https://dataprotection.gov.sk/uoou/sk/main-content/nariadenie-gdpr>
 Piwik PRO, 2017. GDPR in Banking. Piwik PRO, 2017. [online]. [cit. 2018.05.19]. Available at: <https://piwik.pro/blog/gdpr-in-banking-web-analytics/>
 Scanlan, A., Is your bank ready for GDPR? 2018. [online]. [cit. 2018.05.19]. Available at: <http://m.bankingexchange.com/news-feed/item/7503-is-your-bank-ready-for-gdpr>
 SmartInsights, 2017. A long road ahead for Direct & Digital Marketing under the General Data Protection Regulation (GDPR). SmartInsights, 2017. [online]. [cit. 2018.05.19]. Available at: <https://www.smartinsights.com/marketplace-analysis/digital-marketing-laws/long-road-ahead-direct-digital-marketing-general-data-protection-regulation-gdpr/>
 SmartInsights, 2018. Implications of the GDPR for marketing in UK and Europe. SmartInsights, 2018. [online]. [cit. 2018.05.19]. Available at: <https://www.smartinsights.com/tag/gdpr/>
 Stratégie, 2018. GDPR a digital. Stratégie, 2018. [online]. [cit. 2018.05.19]. Available at: <https://strategie.hnonline.sk/marketing/1761916-gdpr-a-digital-najviac-suhlasov-davame-pre-e-mail-newslettre>
 Štarchoň, P., Faltys, J. and Dzugasová, J., 2004. Priamy marketing alebo Priama cesta ako si získať a udržať zákazníka. Bratislava: Direct Marketing Beta, 2004. ISBN 80-969078-5-9.
 Štarchoň, P., 2017. Bankový marketing. Princípy a špecifiká. Praha: Wolters Kluwer, 2017. ISBN 978-80-7552-948-0.
 Tapp, A., Whitten, I. and Housden, M., 2014. Principles of Direct, Database and Digital Marketing. London: Pearson, 2014. ISBN 978-0-273-75650-7.
Kľúčové slová/Key Words
GDPR, ochrana údajov, priamy marketing, banky, financial sector
GDPR, data protection, direct marketing, banks, financial sector
JEL klasifikácia/ JEL Classification
Dopad GDPR na banky na Slovensku – marketingový prístup. Časť I.
Príspevok prostredníctvom rozboru Nariadenia Európskeho parlamentu a Rady Európy (EÚ) č. 2016/679 z 27. apríla 2016 o ochrane fyzických osôb pri spracovaní osobných údajov a voľnom pohybe takýchto údajov a o zrušení Smernice 95/46/EC (GDPR) má za cieľ demonštrovať svoj význam vo finančnom sektore spolu s dopadom na komplexné riadenie marketingových aktivít v rámci špecifických finančných inštitúcií. V teoretickej časti tohto príspevku bude vysvetlená stručná história ochrany údajov a vývoj koncepcie GDPR. Hlavné princípy a inovácie, ktoré majú kľúčový význam pre budúci pozitívny vývoj v danej oblasti, budú diskutované s dôrazom na vzťahy medzi bankami a priamym marketingom. Okrem toho budú prezentované vybrané výsledky primárneho výskumu zameraného na ochranu osobných údajov z pohľadu spotrebiteľov na Slovensku (online dotazník bol vyplnený 355 respondentmi). Ďalej sa budeme snažiť identifikovať výzvy, ktoré musí banka splniť pri dodržiavaní novej smernice.
Kontakt na autorov/Address
Mgr. Lucia Kočišová, Univerzita Komenského v Bratislave, Fakulta managementu, Katedra marketingu, Odbojárov 10, 820 05 Bratislava 25, e-mail: [email protected]
PhDr. Tomáš Pikulík, Univerzita Komenského v Bratislave, Fakulta managementu, Katedra marketingu, Odbojárov 10, 820 05 Bratislava 25, e-mail: [email protected]
Mgr. Martin Šeliga, Univerzita Komenského v Bratislave, Fakulta managementu, Katedra marketingu, Odbojárov 10, 820 05 Bratislava 25, e-mail: [email protected]
prof. Mgr. Peter Štarchoň, PhD., Univerzita Komenského v Bratislave, Fakulta managementu, Katedra marketingu, Odbojárov 10, 820 05 Bratislava 25, e-mail: [email protected]
6. jún 2018 / 11. jún 2018