tag:econsultancy.com,2008:/topics/legal-and-regulations Latest Legal content from Econsultancy 2016-10-14T16:21:27+01:00 tag:econsultancy.com,2008:BlogPost/68407 2016-10-14T16:21:27+01:00 2016-10-14T16:21:27+01:00 The five things every company can learn from the Wells Fargo scandal Patricio Robles <h3>Sales goals aren't bad, but...</h3> <p>In the wake of its scandal, Wells Fargo has vowed to end retail banking product sales goals.</p> <p>"We are eliminating product sales goals because we want to make certain our customers have full confidence that our retail bankers are always focused on the best interests of customers," Wells Fargo CEO John Stumpf said in a statement.</p> <p>But sales goals aren't inherently bad, and Stumpf's statement seems to take the misguided view that sales goals are in conflict with the interests of customers.</p> <p>That isn't the case.</p> <p>What is bad are<strong> sales goals that are unrealistic and that employees don't believe they can meet.</strong></p> <p>The fact that over 5,000 Wells Fargo employees were fired for being involved in the creation of more than 2m fraudulent accounts strongly suggests that Wells Fargo's sales goals were either not tied to reality or that the employees asked to hit them didn't feel they had the support and resources needed to do so.</p> <p>Indeed, one former Wells Fargo employee <a href="https://consumerist.com/2016/09/19/4-things-former-wells-fargo-workers-revealed-about-pressure-to-meet-sales-goals/">said</a> that she was told to increase sales 35% each year, a nearly impossible task given that she was in a small town with a finite customer base.</p> <h3>You need good products to cross-sell successfully</h3> <p>In response to the crisis it faces, Wells Fargo has also instructed employees to stop cross-selling.</p> <p>A memo sent to some Wells Fargo call center employees <a href="http://www.wsj.com/articles/wells-fargo-curbs-product-cross-selling-1473715298">stated</a> "please suspend referrals of products or services unless requested by customers until further notice."</p> <p>While that move may be advisable for Wells Fargo given the current situation, here too it's unwise to draw the broader conclusion that cross-selling is bad.</p> <p>It isn't. </p> <p>The reason it was so problematic for Wells Fargo is that the bank was cross-selling products consumers in many cases didn't want, or wouldn't want if they knew what they were buying.</p> <p>For example, one of the products that employees reportedly pushed hard to customers was overdraft protection, a "potentially costly" offering "they didn’t always need or realize they were getting."</p> <p>Effective cross-selling involves the promotion of quality products that customers might want or need based on their profile or purchase history.</p> <p>It does not involve deception or the pushing of products for the purpose of maximizing revenue without maximizing customer value. </p> <h3>Commoditisation sucks, especially when you don't deal with it</h3> <p>Wells Fargo's apparently unrealistic sales goals and aggressive cross-selling belied a harsh but simple truth: Retail and business banking are increasingly commoditised. </p> <p>Commoditisation is challenging in any industry, but it doesn't have to be a death knell.</p> <p>Wells Fargo could have recognised the nature of the market it is in and implemented <a href="http://www.strategyand.pwc.com/perspectives/2015-retailbanking-trends">customer-focused strategies</a>, but instead, the giant bank appears to have assumed that its existing customer base was an easily exploitable asset that it could take advantage of without consequence.</p> <p>That was a huge mistake.</p> <h3>Fear and pressure are not viable employee incentives</h3> <p>According to Khalid Taha, who worked as a personal banker for Wells Fargo in San Diego for three years, "I had to meet quotas every day, if I didn't then I could be written up and fired."</p> <p>His story mirrors that of other former employees <a href="http://money.cnn.com/2016/09/09/investing/wells-fargo-phony-accounts-culture/">who are speaking out</a>.</p> <p>Many of the rank-and-file workers who were involved in signing customers up for phony accounts didn't have nearly as much to gain monetarily as Wells Fargo executives, one of whom retired with a $125m payday. </p> <p>Instead, the picture that has emerged is one in which most employees who were engaged in the phony accounts scheme were doing so primarily because they felt fear and pressure, which should never be used to motivate employees who are responsible for selling.</p> <h3>A reputation can be destroyed in an instant</h3> <p>Wells Fargo has long been considered one of the most conservative of the large US banks, and emerged from the financial crisis of 2008 with far less reputational damage than most of its peers.</p> <p>But now, Wells Fargo has been turned into the latest poster child for everything that is wrong with the banking industry, proving what billionaire investor Warren Buffett once observed...</p> <blockquote> <p>It takes 20 years to build a reputation and five minutes to ruin it. </p> </blockquote> <p>Ironically, Buffett's firm, Berkshire Hathaway, owns 10% of Wells Fargo, making it the bank's largest shareholder and the <a href="http://www.vanityfair.com/news/2016/09/warren-buffett-wells-fargo">biggest loser</a> in the decline of Wells Fargo's stock.</p> <p>Buffett once stated, "Lose money for the firm and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless."</p> <p>Buffett hasn't yet spoken publicly about the Wells Fargo scandal, but if the octogenarian investor lives by his past words, Wells Fargo's reputational woes could quickly become even more costly.</p> tag:econsultancy.com,2008:BlogPost/68334 2016-09-29T15:04:38+01:00 2016-09-29T15:04:38+01:00 Wells Fargo scandal shows why banks are vulnerable to fintech startups Patricio Robles <p>While scandal in the banking sector is no surprise, particularly since the global financial crisis of 2008, many were surprised to find Wells Fargo at the center of one.</p> <p>After all, the bank is considered one of the more conservative of the major banks, and with its headquarters in San Francisco, it's over 2,500 miles away from Wall Street.</p> <h3>Not an isolated dynamic</h3> <p>Unfortunately, as CNN's Matt Egan <a href="http://money.cnn.com/2016/09/22/investing/wells-fargo-fake-accounts-banks/">has detailed</a>, the apparent motivations for the Wells Fargo scandal aren't unique to Wells Fargo.</p> <p>"Banks are under enormous margin pressure," chief of the Office of Comptroller of the Currency, Thomas Curry, told a Senate panel.</p> <p>And an anonymous banker told CNN's Eagan, "There is a blurred line between what's best for the customer and what's best for our sales goals."</p> <p>To achieve those sales goals, employees are incentivized to cross-sell customers on different products offered by their banks. </p> <p>The result, in Wells Fargo's case, was behavior that led to the largest fine in the history of the Consumer Finance Protection Bureau. Additionally, Wells Fargo has agreed to change its sales practices.</p> <p>But while Wells Fargo is thus far the only institution known to have engaged in fraud, there are concerns other banks have been over-aggressively engaging in cross-selling, raising the specter of future scandals yet to be uncovered.</p> <h3>The fintech angle</h3> <p>While the importance of cross-selling has been amplified in today's challenging banking environment, which has seen record low interest rates and ever-increasing regulation, banks are finding it harder and harder to cross-sell because their leverage over customers has decreased significantly.</p> <p>Historically, banks forged strong relationships with their customers and were one-stop shops for many of their needs.</p> <p>An individual who had a personal deposit account with a particular bank would turn to that bank for personal and business loans, mortgages, etc.</p> <p>The internet, and the fintech revolution it fostered, has changed that.</p> <p><strong>Today, most financial services can be obtained unbundled.</strong> That makes it easier for consumers and businesses to shop around, and not surprisingly, the best providers aren't always the banks they have done business with for years.</p> <p>For example, many individuals have found that they can be approved for personal loans faster and at a lower cost by non-bank upstart online lenders than the banks where they've held their deposit accounts for years.</p> <p>For large banks like Wells Fargo, this is a major impediment to cross selling.</p> <p>After all, if it's easy for customers to find other providers that can offer better pricing and/or a better overall experience, there's little incentive for those customers to settle for less just for loyalty's sake.</p> <p>This makes the Wells Fargos of the world very vulnerable.</p> <h3>How can banks respond?</h3> <p>Obviously, the best way for large banks to address this issue isn't to engage in massive fraud.</p> <p>That will only exacerbate the reputational woes of the banking industry.</p> <p>Instead, if banks want to cross-sell more effectively, they need to ensure that the products and services they cross-sell are competitive in terms of pricing and overall customer experience.</p> <p>Of course, that's easier said than done, particularly given some of the <a href="https://econsultancy.com/blog/68215-are-regulations-impeding-financial-services-innovation">challenges in recruiting digital talent</a>, but it's the only real solution.</p> <p>The good news is that banks that can improve their products and services, and develop innovative new ones, will not only be in a better position to cross-sell to their existing customers, but to use those products and services as a wedge to lure new customers who do business with other banks.</p> <p><em>For more on this topic, see:</em></p> <ul> <li><a href="https://econsultancy.com/blog/67202-what-s-the-future-for-big-banks-in-a-fintech-world/"><em>What's the future for big banks in a FinTech world?</em></a></li> <li><a href="https://econsultancy.com/blog/68159-five-ways-fintech-upstarts-are-disrupting-established-financial-institutions/"><em>Five ways fintech upstarts are disrupting established financial institutions</em></a></li> </ul> tag:econsultancy.com,2008:BlogPost/68237 2016-08-30T14:49:08+01:00 2016-08-30T14:49:08+01:00 Chipotle ruling shows importance of employee social media engagement Patricio Robles <p>In 2015, fast food chain Chipotle fired an employee, James Kennedy, shortly after he posted a tweet criticizing the company's pay in response to a customer who thanked Chipotle for free food.</p> <p>Kennedy deleted the tweet when confronted by a supervisor, who informed him that the tweet violated the company's social media policy, which prohibited employees from posting disparaging and false claims online.</p> <p>Kennedy was fired when he later started a petition related to employee breaks.</p> <p>In March, an NLRB judge, Susan Flynn, <a href="https://econsultancy.com/blog/67669-what-brands-can-learn-from-chipotle-s-twitter-fiasco">ruled that Kennedy's firing violated labor laws</a> and that his tweet was considered protected speech under the National Labor Relations Act, which allows employees to freely discuss their working conditions. </p> <p>This month, much of Flynn's ruling <a href="http://www.mediapost.com/publications/article/283060/chipotles-social-media-policy-violated-law-says.html">was upheld</a> on appeal. This means the Chipotle social media policy that was in effect at the time was illegal because it could be used to prevent protected speech.</p> <p>The NLRB has been addressing social media issues like those in the Kennedy case <a href="https://www.nlrb.gov/news-outreach/fact-sheets/nlrb-and-social-media">for years</a> now, and has been warning employers about social media policies that run afoul of the law.</p> <p>But the fact that large employers like Chipotle are still having conflicts with employees over their social media use demonstrates the fact that corporate social media policies are still a thorny matter.</p> <h3>A better approach</h3> <p>Even so, companies <a href="https://econsultancy.com/blog/67091-how-l-oreal-uses-social-media-to-increase-employee-engagement">like L'Oreal</a> are using social media to promote positive engagement with employees, providing evidence that with the right strategy and <a href="https://econsultancy.com/blog/11011-the-importance-of-supporting-employees-in-social-media">active support</a>, it's possible to <a href="https://econsultancy.com/blog/66806-how-to-turn-your-employees-into-company-advocates">turn employees into advocates on social media</a>.</p> <p>The benefits of this can be significant and range from increased employee morale to <a href="https://econsultancy.com/blog/66725-how-social-media-can-help-with-recruitment">more effective recruitment</a>.  </p> <p>The NLRB has also made it clear that social media policies can be used to restrict some employee criticisms that aren't covered by the National Labor Relations Act.</p> <p>Given that <a href="https://econsultancy.com/blog/5954-one-in-five-employees-use-social-media-to-criticise-the-boss">40% of employees use social media to criticize their workplace</a> and one in five uses it to criticize a superior, monitoring and addressing all employee social activity is going to be difficult, and doing so without risking a violation of employee rights is in some cases going to be all but impossible.</p> <p>The better, more realistic approach: Focus on developing a compelling <a href="https://econsultancy.com/blog/67502-what-makes-a-good-employee-value-proposition">employee value proposition</a> and understanding what motivates <a href="https://econsultancy.com/blog/66218-the-five-types-of-content-employees-love-to-share-on-social-media">positive employee sharing on social media</a>. </p> <p>While this is more easily said than done, particularly for large companies whose employee ranks don't consist primarily of highly-paid professionals, employee social engagement is arguably as worthwhile an investment as consumer social engagement.</p> tag:econsultancy.com,2008:BlogPost/68232 2016-08-29T03:00:00+01:00 2016-08-29T03:00:00+01:00 China introduces far-reaching new internet ad law: Why it matters Jeff Rajeck <p><img src="https://assets.econsultancy.com/images/0007/8461/Us_ads.png" alt="" width="480" height="328"></p> <p>China, by comparison spends a far greater percentage (66%) of its advertising on internet and mobile and a much smaller percentage (24%) on traditional media.</p> <p><img src="https://assets.econsultancy.com/images/0007/8460/China_ad.png" alt="" width="481" height="323"></p> <p>So, even though the overall dollar amount spent in China is less than in the US, the<strong> internet is a much more significant part of advertising in China</strong>.</p> <p>Because of this, China is likely to be a trend-setter for other parts of the world.</p> <p>To learn a bit more about what might be coming to internet advertising in the rest of the world, here is the background and some detail of the new law in China.</p> <h3>Background</h3> <p>In July, 2015 China's State Administration for Industry and Commerce (“SAIC”) amended the Chinese Advertising Law to cover internet advertising.  </p> <p>New regulations were supposed to go in effect last September (2015) but were largely unenforced.</p> <p>Recently, however, there has been renewed interest in regulating online advertising, which may have something to do with the tragic story of Wei Zexi.</p> <h4>The death of Wei Zexi</h4> <p>On April 12, 2016, Chinese student Wei Zexi died after receiving experimental treatment for cancer which he found out about through an ad on China's main search engine, Baidu.</p> <p>The hospital had, apparently, claimed a high success rate for the treatment in the ad.  </p> <p>The ads were also regularly featured prominently in search results as the hospital group was reportedly responsible for nearly half of Baidu's multi-billion dollar ad revenues.</p> <p>Wei Zexi's death drew renewed attention to the Advertising Law from Chinese media, including 250,000 comments on an online editorial on the matter.</p> <p>In apparent response, the regulators not only censured Baidu and issued specific regulations for it, but also followed up with new laws.</p> <h4>Response</h4> <p>On July 4, 2016 the SAIC issued new regulations, the Interim Measures for the Administration of Internet Advertising, which take effect on September 1, 2016.</p> <p>The Advertising Law and the Interim Measures are the first step China's SAIC has taken toward defining and regulating advertising.</p> <h3>The new laws</h3> <h4>Internet advertising defined</h4> <p>There is a lot of detail in the definition of internet advertising in the new law (which you can read about <a href="http://www.lexology.com/library/detail.aspx?g=296c00a7-f562-4012-a6d3-c8ec58463c2f">here</a>), but in brief, <strong>internet advertising is defined as any commercial marketing anywhere on the internet for anything</strong>.</p> <p>The definition is broad and even includes out-of-home displays with web addresses and recommendation engines on ecommerce platforms.</p> <h4>Internet publishers defined</h4> <p>More interesting is how the regulators define a 'publisher.' According to the law <strong>a publisher refers to those who push OR display the advertising.</strong></p> <p>This can include websites, ad tech platforms, influencers, and even internet service providers.  </p> <p>In short, anyone who has the ability to review and prevent an illegal ad from showing can be held responsible.</p> <p>This definition is, again, quite broad and will give the government a lot of flexibility to enforce the law as it likes in the future.</p> <h4>Publishers obligations</h4> <p>The real meat of the regulation, however, are the <strong>publisher's obligations.</strong></p> <p>According to the new law, publishers will need to: </p> <ul> <li>know who their customers are,</li> <li>verify any credentials they give, and</li> <li>verify the ad content.</li> </ul> <p>To handle this, publishers and ecommerce sites will be expected to hire specialists to record customer details, review all ads and block those which do not comply. </p> <p>While there are other things in the law, such as anti-spam clauses and a ban on ad-blockers (<a href="http://adage.com/article/digital/china-ban-ad-blocking/305077/">maybe</a>), the fact that publishers, broadly defined, will be responsible for the claims made by advertisers is among the biggest changes.</p> <p>This means that China has gone from one of the least regulated advertising markets to one of the most, almost overnight.</p> <h3>Example: Baidu</h3> <p>These regulations sound somewhat far-reaching and difficult for companies to comply with.</p> <p>But have a look at Baidu's search results for cosmetics (化妆品).  The top three results are ads and are, as one might expect, marked as promotional posts on the right in blue (商业推广).</p> <p><img src="https://assets.econsultancy.com/images/0007/8465/baidu_2.png" alt="" width="438" height="442"></p> <p>But interestingly there is also a grey link after the domain name (评价) which sends the browser to another page, offering details about the advertiser and fielding comments.  </p> <p>Here it is for one vendor, translated into English by Google.</p> <p><img src="https://assets.econsultancy.com/images/0007/8463/baidu_vendor.png" alt="" width="452" height="267"></p> <p>It seems, therefore, that <strong>Baidu is already taking the regulations quite seriously.</strong></p> <h3>Why everyone should be interested in China's new laws</h3> <h4>1. The new laws raise interesting questions for other countries</h4> <p>Most Western countries have carried over existing advertising legislation to online platforms.  </p> <p>This works well when the advertising model has two players, the advertiser and the publisher, but breaks down when there are multiple parties involved.</p> <p>Unresolved questions include:</p> <ul> <li>Who is responsible for ad content in <a href="https://econsultancy.com/blog/65677-a-super-accessible-beginner-s-guide-to-programmatic-buying-and-rtb/">programmatic advertising</a>?</li> <li>Is checking native ads the reponsibility of the publisher or the agency?</li> <li>What about influencers who appear on a social media site via an agency?</li> </ul> <p>China's legislators have a simple answer, <strong>everyone in the ad chain is potentially responsible</strong>.  </p> <p>While this may seem heavy-handed it will likely encourage the various players to be much more careful with ads than if they felt they could always blame the originator or the delivery platform.</p> <h4>2. The regulation might set a trend</h4> <p>Because the law does address these issues left somewhat unclear in the West, China's approach may attract the attention of Western regulators.</p> <p>As of yet, there have been very few cases of regulators cracking down on behavioural, programmatic, or even <a href="https://econsultancy.com/reports/the-rise-of-influencers/">influencer marketing</a>.</p> <p>One recent example is from the US. The  Federal Trade Commission <a href="http://www.adweek.com/news/advertising-branding/ftc-slams-lord-taylor-deceiving-customers-not-disclosing-its-native-ads-170229">filed a complaint against fashion retailer Lord &amp; Taylor in the US</a> for unregulated influencer marketing.</p> <p><img src="https://assets.econsultancy.com/images/0007/8464/lord_taylor.jpg" alt="" width="486" height="243"></p> <p>There are, however, very few other cases of such action and, in fact, <a href="http://www.prweek.com/article/1390325/brands-agencies-admit-flouting-uks-rules-influencer-marketing">many marketers freely admit overstepping guidelines</a> set by their regulators.</p> <p>If China's approach works without seeming heavy-handed, therefore, <strong>other countries may end up with similar laws governing internet advertising.</strong></p> <h4>3. The new laws could spark innovation</h4> <p>One interesting angle in all of this is because each layer of the ad tech stack is held responsible for content, it is likely that technical monitoring solutions will arise.</p> <p>It will not be easy for publishers, agencies, buy and sell-side platforms, and even brands to ensure that all ads published are compliant.</p> <p>Because of this, new ad tech with compliance features may spring up to help all involved with the process.</p> <h3>So...</h3> <p>Brands that are advertising in China<strong> should become familiar with the legislation as soon as possible.</strong>  </p> <p>As of September 1, 2016 the State Administration for Industry and Commerce will be monitoring for ads which violate the policies set out in the Advertising Law and the Interim Measures for the Administration of Internet Advertising.</p> <p>Those who do not currently advertise in China should, however, take note as well.  </p> <p>Most other countries currently enjoy little or no regulation, but should China's attempts to regulate be effective it would not be a surprise to see such laws appear elsewhere.</p> <p><em>For related information, read Econsultancy's <a href="https://econsultancy.com/reports/the-china-digital-report/">China Digital Report</a>.</em></p> tag:econsultancy.com,2008:BlogPost/68215 2016-08-25T14:24:00+01:00 2016-08-25T14:24:00+01:00 Are regulations impeding financial services innovation? Patricio Robles <p>As <a href="http://www.ft.com/cms/s/0/66c75f74-6790-11e6-ae5b-a7cc5dd5a28c.html">detailed by</a> The Financial Times, BBVA is asking the European Commission to make changes to the bonus cap rules, which apply to employees who are "material risk takers" or earn more than €500,000 per annum.</p> <p>BBVA says that the bonus cap rules are making it difficult to compete and innovate, and that they should be amended.</p> <p>Specifically, BBVA would like to see that they're not applied to technology specialists, which the bank notes have seen their compensation increase but who don't expose the bank to the type of risks traders do.</p> <p>"In some cases we compete against US banks or tech companies on acquisitions. Their bonuses are not capped, so we may lose out," BBVA's digital M&amp;A chief, Juan López Carretero, told the FT.</p> <blockquote> <p>If you can design an app so a payment is done in two clicks instead of eight clicks that is valuable but it isn’t putting the bank at risk.</p> </blockquote> <p>BBVA is considered one of the more tech-friendly large banks.</p> <p>It <a href="https://www.bbva.com/en/news/economy/corporate/finance/bbva-acquires-simple-to-accelerate-digital-banking-expansion/">acquired Simple</a>, a US banking startup, for $117m in 2014, <a href="https://www.bbva.com/en/news/general/bbva-acquires-finnish-banking-start-holvi/">and Finnish business banking startup Holvi</a> in March. </p> <p>BBVA has invested in a number of financial services startups, including <a href="http://www.ft.com/cms/s/0/b71ad596-91f3-11e5-94e6-c5413829caa5.html">UK mobile bank Atom</a>, and earlier this year it <a href="http://www.americanbanker.com/news/bank-technology/whats-behind-restructuring-of-bbvas-fintech-venture-fund-1079319-1.html">created an independent venture firm</a>, Propel Venture Partners, to "invest in technology-driven companies that are Rethinking and Rebuilding financial services."</p> <p>With more and more <a href="https://econsultancy.com/blog/67919-five-fintech-start-ups-aiming-to-replace-traditional-banking">startups looking to disrupt traditional banking</a>, rules that make it more difficult for banks like BBVA to recruit top tech talent or acquire promising young companies would indeed appear to be a legitimate concern.</p> <p>But big banks shouldn't fall into the trap of believing that the ability to open their wallets more freely is the key to thwarting would-be disruptors and spurring innovation.</p> <p><strong>First,</strong> in the battle for talent, <a href="https://techcrunch.com/2015/06/25/a-closer-look-at-the-silicon-valley-vs-wall-street-talent-war/">it's not all about money</a>.</p> <p>Many of those who are choosing Silicon Valley over Wall Street and The City aren't doing so just because they see the opportunity to make more money.</p> <p>Big banks are seen by many as stodgy and bureaucratic, making them less attractive for job seekers looking for opportunities that will give them the ability to do interesting work and make an impact.</p> <p>Additionally, the financial services industry's reputation hit post-2008 hasn't helped matters.  </p> <p><strong>Second,</strong> as far as acquisitions and partnerships are concerned, banks will need to prove that they can integrate with the upstarts they acquire and partner with.</p> <p>BBVA appears to be on the right track in this regard <a href="https://www.finextra.com/newsarticle/28693/simple-to-move-customer-accounts-to-bbva-compass-platform">thanks to investment in APIs</a>, but it's still very early in the game and it's not clear that large financial institutions will be able to acquire or partner their way to success.</p> <h3>Regulation to the rescue?</h3> <p>Ironically, regulation might soon provide some relief for banks under attack from fintechs.</p> <p>Their rapid rise has not gone unnoticed by regulators and it's possible that fintech upstarts will soon find themselves subject to much greater scrutiny.</p> <p>For example, in the US, state and federal regulators, including the FDIC, <a href="http://www.wsj.com/articles/greater-scrutiny-looms-for-bank-online-lender-rent-a-charter-deals-1471824803">are eyeing new guidelines</a> that would allow greater oversight of online lenders.</p> <p>If they become subject to more regulation, these upstart non-bank lenders could see many of the advantages they've used to gain market share slip away, making it easier for banks to compete for loan business once again.</p> <p>That could be good news for banks, at least in the short-term, but even if fintechs are saddled with new regulatory burdens, the reality is that <a href="http://www.americanbanker.com/news/bank-technology/what-do-millennials-want-from-banks-everything-nothing-whatever-1079945-1.html">consumer behavior and expectations have changed and continue to change</a>.</p> <p>Banks that want to thrive will need to address this and they can't do that with money alone.</p> tag:econsultancy.com,2008:BlogPost/68108 2016-08-02T12:30:00+01:00 2016-08-02T12:30:00+01:00 Brexit and the Digital Single Market: Three ways forward Todd Ruback <h3>Brexit, data protection and the Digital Single Market</h3> <p>The people have collectively spoken and now policy makers need to forge a path forward that honours the will of the people, while also ensuring the UK’s access to the all important EU economic market – especially the digital market and this is no easy task.</p> <p>The UK’s decision to leave the European Union comes just on the heels of the passage of the EU’s General Data Protection Regulation (GDPR), a massive piece of legislation that aims to give control over personal data back to the individual through a series of new codified rights.</p> <p>The GDPR is a pan-European law that will add certainty for companies selling their wares to EU citizens.</p> <p>More importantly, it is the foundation of the <a href="http://ec.europa.eu/priorities/digital-single-market_en">Digital Single Market</a>, a strategic European initiative that aims to create fertile conditions for European-based innovation that will add billions of Euros to the overall economy, the UK included, while creating countless jobs.</p> <p><iframe src="https://www.youtube.com/embed/mTeqrJJPkfg?wmode=transparent" width="560" height="315"></iframe></p> <p><em>As well as increasing access to goods and services, the Digital Single Market will also improve networks and drive economic growth</em></p> <p>The UK’s pending exit from the EU puts it at risk of not participating in the Digital Single Market unless another option can be implemented.</p> <p>Here are three possible paths forward, none of them straightforward, but paths nonetheless.</p> <h3>Three paths forward</h3> <p><strong>1. UK adopts GDPR</strong></p> <p>The UK can adopt the GDPR as its own national data protection legislation, but then would still be left with the dystopian act of applying – upon a politically bended knee – to the EU to be granted “adequacy” status, which is legal jargon recognising that your data protection law offers the equivalent level of protection that the GDPR provides.</p> <p>If you receive “adequacy”, as countries like Canada and Argentina have been granted, then data can flow between the two economies freely.</p> <p>At issue is whether political egos will get in the way of applying for “adequacy” designation, and that is impossible to predict.</p> <p><strong>2. Be Switzerland </strong></p> <p>A second path forward would be for the UK to follow the Swiss model and negotiate a series of critical trade agreements with the EU that will allow the UK access to the EU digital market.</p> <p>While a series of one-off trade agreements may require a lot of heavy lifting and must be done quickly, it is important to remember that reciprocal access by the EU to the UK economy, the second largest in the EU after Germany, is important to the EU.</p> <p><strong>3. EEA Membership</strong></p> <p>A third path forward may be the simplest and could represent a balanced approach that would both honour the collective will of UK citizens, while still providing access to the EU Digital Single Market.</p> <p>Namely, the UK could apply to become part of the European Economic Area (EEA), a 1994 agreement that opens the EU market to non-member states under certain situations.</p> <p>Norway is the prime example, but there are technical considerations that I am not qualified to comment on that still must be met before a country can join the EEA, and like the first option, could result in an unbalanced relationship since membership is contingent upon meeting EU mandated and monitored requirements.</p> <h3>Riveting but serious </h3> <p>The UK political theatre playing out in front of us is riveting, especially for an American privacy wonk such as myself.</p> <p>But its entertainment value is far outweighed by the economic seriousness that portent if cool heads don’t negotiate a way forward.</p> <p>I know some of these cool heads, both in London and Brussels, and am confident that they will find that path forward that honours the democratic will of the referendum, while also fostering conditions for joint economic prosperity.</p> <p>It’s in everyone’s best interest.</p> <p><em>More on Brexit and the UK's digital economy:</em></p> <ul> <li> <a href="https://econsultancy.com/blog/68003-ecommerce-in-the-uk-post-brexit-positives-negatives-opportunities/">Ecommerce in the UK post-Brexit: Positives, negatives &amp; opportunities</a> </li> <li> <a href="https://econsultancy.com/blog/68001-how-will-brexit-impact-digital-businesses-and-marketers/">How will Brexit impact digital businesses and marketers?</a> </li> <li> <a href="https://econsultancy.com/blog/68099-three-ways-uk-retailers-can-utilise-the-post-brexit-gbp-drop-to-target-international-customers/">Three ways UK retailers can utilise the post-Brexit GBP drop to target international customers</a> </li> </ul> tag:econsultancy.com,2008:BlogPost/68067 2016-07-15T14:27:00+01:00 2016-07-15T14:27:00+01:00 Is ad fraud the 21st century drug trade? Patricio Robles <p>The Senators are concerned that ad fraud, which is estimated to be costing advertisers billions annually, could eventually lead companies to pass the costs of fraud on to consumers in the form of higher prices.</p> <p>They are also concerned that as fraudsters flood the online ad market, consumers will be at greater risk of having personal information stolen and abused.  </p> <blockquote class="twitter-tweet"> <p lang="en" dir="ltr">Here's an amazing fact: by 2025, the digital ad market could be 2nd only to drug trafficking as largest revenue source for organized crime</p> — Mark Warner (@MarkWarner) <a href="https://twitter.com/MarkWarner/status/752512068562063360">11 de julio de 2016</a> </blockquote> <h3>The role of programmatic</h3> <p>While digital ad fraud has been around in some form or another since digital ads first appeared, it appears to be becoming more lucrative and complex.</p> <p>There's more digital ad inventory than ever, and many advertisers are pouring more and more money into digital spend. At the same time, publishers and advertisers have embraced <a href="https://econsultancy.com/reports/the-cmo-s-guide-to-programmatic">programmatic</a> ad buying.</p> <p>According to Senator Mark Warner of Virginia, this makes for a dangerous combination. <a href="http://www.wsj.com/articles/senators-urge-ftc-to-examine-ad-fraud-1468231200">He told</a> the Wall Street Journal... </p> <blockquote> <p>This is a $60 billion industry, and some of the fraud numbers suggest that 10% of that is being wasted. And you’re seeing some of the same tools [we saw] in stock manipulation. This needs to be looked at.</p> </blockquote> <p>Warner likens the ad fraud problem to the 2008 financial crisis, and suggests that "some of the tech community has swept this under the rug," though he admits that he and other lawmakers have a lot to learn about the subject before the possibility of legislation should be put on the table.</p> <p><strong>But is ad fraud really a problem that can legitimately be compared to drug trafficking? That isn't so clear.</strong></p> <p>The industry is <a href="https://econsultancy.com/blog/67660-what-can-prevent-ad-fraud-we-ask-an-ad-tech-ceo">well aware of the issue</a>, and many parties are working to mitigate it.</p> <p>The good news is that digital advertising is one of the most accountable forms of advertising, so prudent advertisers have many opportunities to ensure that they're not being taken for a ride.</p> <p>So what explains the fact that advertisers are estimated to be spending billions on fraudulent ads that aren't being seen by real people? It's simple: in most cases, ad prices reflect advertisers' knowledge that fraud and <a href="https://econsultancy.com/blog/67076-the-rise-and-rise-of-ad-blockers-stats">ad blockers</a> will prevent 100% viewability.</p> <p>As former brand marketer Rick Webb <a href="https://econsultancy.com/blog/66712-former-brand-marketer-banner-ads-suck-but-they-re-great">explained last year</a>...</p> <blockquote> <p>We’ll spend a million bucks on a literal f**k ton of banners (I mean, just billions of the things, it’s crazy). And then we’ll do targeted brand sentiment and purchase-intent surveys using our internal peeps, online along with companies like Nielsen and Foresee, and offline with a bunch of (really quite awesome) companies you’ve never heard of. Then we’ll see whether the banners moved the needle, and if they did (and they often do), we’re happy.</p> </blockquote> <p>In other words, <a href="https://econsultancy.com/blog/67632-why-chasing-after-100-viewability-makes-no-sense-for-advertisers">100% viewability isn't required</a> to run profitable campaigns, and sophisticated advertisers are more than capable of factoring viewability into their considerations when determining how much they should pay for ads.</p> <h3>The bigger problem?</h3> <p>Obviously, this doesn't mean that ad fraud isn't a problem worth addressing, but the idea that ad fraud, and programmatic ad fraud in particular, is going to create a Wall Street-like crisis that threatens the digital advertising ecosystem seems far-fetched.</p> <p>If anything, lawmakers and regulators should be more concerned about how fraudsters <a href="https://econsultancy.com/blog/67924-is-facebook-doing-enough-to-prevent-fraudulent-ads">are using digital ads to target consumers</a>. Long-term, that is perhaps the biggest threat to digital advertising that publishers and advertisers should be most concerned about.</p> <p><em>Want to know more, why not attend <a href="http://conferences.marketingweek.com/mc/programmatic/getwiththeprogrammatic">Get With the Programmatic</a>, Marketing Week and Econsultancy's one-day conference on 21st September in London, to hear from brand and agency experts.</em></p> tag:econsultancy.com,2008:BlogPost/67923 2016-06-09T14:43:00+01:00 2016-06-09T14:43:00+01:00 Influencer marketing is becoming a joke: What can brands do about it? Patricio Robles <p>That dark side was on display for all to see recently when Scott Disick, a television personality best known for his relationship with reality TV star and socialite Kourtney Kardashian, was caught posting an ostensibly paid promotion for Bootea protein shakes.</p> <p><img src="https://assets.econsultancy.com/images/resized/0007/5705/oops-blog-flyer.jpg" alt="" width="415" height="738"></p> <p>As the screenshot above demonstrates, Disick's Bootea Instagram post was about as far from authentic as is possible and not surprisingly, Disick was subsequently teased and lambasted for his embarrassing faux pas.</p> <p>Brands should take note and heed the following advice to ensure their influencer marketing campaigns don't become a joke.</p> <h3>1. Align your brand with the right influencers</h3> <p>With 16.4m Instagram followers, Scott Disick's ability to reach a large number of people is hard to dispute.</p> <p>But why would Bootea, a health and wellness brand, align itself with a celebrity who is known for his hard-partying ways and who has made headlines for his struggles with drug and alcohol abuse?</p> <p>While Disick shouldn't be shamed for those struggles, it's hard not to think that Bootea would have been better off aligning itself with influencers whose lifestyles are more consistent with its values.</p> <p>Long-term, that is a much safer bet.</p> <h3>2. Think bigger than paid posts</h3> <p>For obvious reasons, paid posts are not going away.</p> <p>But any good influencer campaign should be more thoughtful and comprehensive than paid posts that are the social web equivalent of product placement.</p> <p>The reason for this is that paid posts alone are probably not going to move the needle, especially if those paid posts are not compelling and not clearly aligned with the influencer's persona. </p> <h3>3. Trust your influencers</h3> <p>If a brand can't trust an influencer to write his or her own 140-character tweet or caption for an Instgram post, the influencer relationship needs to be reassessed.</p> <p>Influencer content, even when paid for, should at least <em>appear</em> to be somewhat authentic.</p> <p>Here, an influencer was directed to publish a post referencing a morning protein shake in the afternoon. #fail</p> <h3>4. Co-create, and demand more</h3> <p>Naturally, brands are going to want to have some say in what influencers post.</p> <p>But a brand shouldn't have to direct an influencer to write something as simple as "Keeping up with the summer workout routine..."</p> <p>Instead, they should <a href="https://econsultancy.com/reports/influencing-the-influencers-the-magic-of-co-created-content">co-create content</a> with their influencers to ensure that they stay on message without compromising the influencer's authenticity and creativity.</p> <p><img src="https://assets.econsultancy.com/images/0007/5752/disick.jpg" alt="" width="578" height="370"></p> <p>And they should demand the latter to ensure that they don't get lazy, uninspired content like the above, which is another paid post Disick published for Bootea several weeks ago.</p> <p>Note the similarity to the botched paid post, and the fact that neither post even suggests that Disick is actually using the product. There isn't a glass in sight in either photo.</p> <h3>5. Don't ignore the rules</h3> <p>Although Disick fixed his Instagram faux pas and included the hashtag #ad to identify his post as a paid advertisement, brands looking to ensure their influencer marketing campaigns don't fail should remember not to ignore <a href="https://econsultancy.com/blog/67368-what-advertisers-need-to-know-about-the-ftc-s-new-guidance-on-native-ads/">the guidances provided by the Federal Trade Commission</a> vis-à-vis advertising disclosures.</p> <p>While the FTC obviously can't take action against every violator, <a href="https://www.ftc.gov/news-events/press-releases/2016/03/lord-taylor-settles-ftc-charges-it-deceived-consumers-through">the agency recently settled</a> with Lord &amp; Taylor after alleging that the retailer, among other things, paid Instagram fashion influencers to post pictures of themselves wearing a dress it sold.</p> tag:econsultancy.com,2008:BlogPost/67924 2016-06-07T14:22:00+01:00 2016-06-07T14:22:00+01:00 Is Facebook doing enough to prevent fraudulent ads? Patricio Robles <p>As <a href="https://medium.com/@hunchly/bait-and-switch-the-failure-of-facebook-advertising-an-osint-investigation-37d693b2a858">detailed on his blog</a>, Seitz stumbled onto this subject after noticing a provactive ad related to professional hockey player Sidney Crosby. </p> <p><img src="https://assets.econsultancy.com/images/resized/0007/5753/fbad-blog-flyer.png" alt="" width="347" height="347"></p> <p>Seitz observed that the URL associated with the ad, ctvnews.ca, belongs to a reputable Canadian news outlet, so he clicked on the ad.</p> <p>He found himself on a website that resembled ESPN.com, not ctvnews.ca, but the domain, espn.l1dh.com, was dubious.</p> <p>Scrolling down, Seitz found a number of ads for supplements:</p> <p><img src="https://assets.econsultancy.com/images/resized/0007/5754/fbspoof-blog-flyer.png" alt="" width="358" height="344"></p> <p>At the bottom of the page were apparent testimonials, presented in the format of an embedded Facebook Comments Plugin, but it wasn't genuine.</p> <p>Instead, Seitz discovered that the creator of the page had taken photos of real people and attributed fake comments to them.</p> <p>Seitz concluded:</p> <blockquote> <p>Clearly someone has figured out how to game the Facebook system in order to run ads that look like they lead one place (ctvnews.ca) and ultimately lead to somewhere vastly different.</p> <p>Not only that but they are repeatedly using trademarked names, terms, and false information to sell product. This violates a number of Facebook advertising policies.</p> <p>My guess is that you sign up for the “Free Trial” and you are going to get dinged once a month for life. Or worse.</p> </blockquote> <p>Using Hunchly, Seitz decided to see if he could figure out how common this was.</p> <p>He quickly identified another Facebook ad on a page he had viewed months ago, this one also appearing suspicious and being associated with the URL of a legitimate Canadian news organization. </p> <p>This ad, which also eventually led to a landing page hosted on a suspicious domain, used Google's URL shortening service, so Seitz was able to determine that in a very short period of time, the shortened URL saw 26,812 clicks, at least nearly half of which originated on Facebook.</p> <p>The worrisome implication...</p> <blockquote> <p>...fraudsters can create ads that appear to point to legitimate sites, and then drive tens of thousands of clicks through to their landing pages.</p> <p>Facebook apparently is asleep at the wheel, and sadly, I feel that the general Facebook user and consumers as a whole are being victimized because of it.</p> </blockquote> <p>In an attempt to verify this, Seitz himself set up a Facebook ad campaign for Hunchly and specified that CNN.com be the display URL.</p> <p>"Surely they must catch the fact that the destination URL is not even close to the displayed URL. Surely they must see how bad this would be for the average consumer or Facebook user."</p> <p>But that wasn't the case. To Seitz's amazement, the ad was approved.</p> <p><img src="https://assets.econsultancy.com/images/resized/0007/5756/fbad2-blog-flyer.png" alt="" width="405" height="378"></p> <h3>What gives, Facebook?</h3> <p>While Seitz's proposed solution for this problem, checking to ensure that the landing page domain matches the display domain, is probably too simplistic to be viable, his investigation does raise serious questions about how well Facebook is policing ads.</p> <p>Certainly, the apparent ease with which advertisers can use display URLs referencing popular news sites is hard to understand.</p> <p>As Seitz noted,<strong> "If you tried this in Google AdWords, you would be laughed right out of your account."</strong></p> <p>One commenter suggested that the apparent fraud Seitz discovered only scratches the surface.</p> <p>"I'm afraid you have no idea how black (hint: think Archer) the black hat advertising on Facebook can go, this is not even the tip of the iceberg," he wrote.</p> <p>Others on Hacker News <a href="https://news.ycombinator.com/item?id=11839603">suggested</a> much the same thing, with one person even <a href="https://news.ycombinator.com/item?id=11841815">claiming</a> that "an affiliate acquaintance I met once bribed a Facebook employee, who set his account to autoapprove any ad he wanted.</p> <blockquote> <p>He used this to advertise Google Is Hiring: Work from Home credit card rebill offers. He told me he made $80,000 in the four days it took Facebook to discover it.</p> </blockquote> <p>Obviously, in its defense, Facebook, as one of the largest players in online advertising, has a tough job.</p> <p>Keeping up with scammers and advertisers looking to bend the rules to exploit its massive audience will realistically be an ongoing process, and Facebook isn't going to catch every black or gray hat tactic before it gets employed successfully.</p> <p>But as with any ad company, Facebook faces an inherent conflict: even though it has good reason not to let bad ads overtake its network, it still profits from them.</p> <p>The company's revenue grew a whopping 57%, from $3.3bn to $5.2bn, in the first quarter of the year, so the stakes are high. </p> <p>And with Facebook <a href="https://www.facebook.com/business/news/facebook-powered-ads-for-more-people">extending its Audience Network to show ads to non-Facebook users</a>, the stakes will soon be even higher for Facebook, legitimate advertisers and consumers alike.</p> tag:econsultancy.com,2008:BlogPost/67784 2016-04-27T11:06:15+01:00 2016-04-27T11:06:15+01:00 EU data laws: An update on GDPR & Privacy Shield Todd Ruback <p>The controversial Apple and FBI matter – where the FBI sought to compel Apple to unlock an old iPhone model as part of a domestic terrorism investigation – has already become old news.</p> <p>In the EU, terrorism in Brussels and Paris is forcing uncomfortable and morally difficult conversations about security, privacy, and fundamental human rights. </p> <p>While I am optimistic that we will arrive at a good place, the EU is enacting a flurry of powerful new privacy laws that will impact us all.</p> <h3>General Data Protection Regulation (GDPR)</h3> <p>On the 14<sup>th</sup> April 2016, the EU Parliament <a href="https://econsultancy.com/blog/67540-what-is-the-eu-general-data-protection-regulation-gdpr-why-should-you-care/">formally adopted the GDPR</a>; another legislative step in the multi-year process to overhaul the EU’s disparate data protection laws. </p> <p>The next step will be for the GDPR to be officially published, translated, and put to print in the Official Journal of the European Union, hopefully by June.</p> <p> Just 20 days following that, the two-year countdown to the GDPR taking effect will commence. </p> <p>As the GDPR winds its way through the end of this legislative process, it’s important to note how much work organisations will have to complete during this small two-year window. </p> <p>It will strengthen the individual’s control over their personal data by new rights that will be bestowed upon EU citizens, such as the right to data portability and the right to be forgotten (erasure).</p> <p><img src="https://assets.econsultancy.com/images/0007/4342/The_EU.jpg" alt="" width="800" height="600"></p> <p>On the flip side, organisations will have new codified obligations to honour the individual’s rights, and these obligations will force companies to create new privacy-centric business processes – no easy task in the best of times. </p> <p>For example, the quaint notion of “bundled” consent – those dense, unreadable Terms and Conditions buried in the footer of a site that say use of the website constitutes consent to the company’s data practices – is non-existent. </p> <p>In it’s place, companies are going to have to give prominent notice and obtain a user’s consent when a person visits their website.</p> <p>Other changes include more transparent privacy policies and the requirement to have processes for a person to access, review, and correct their personal data, as well as request that data can be easily transferred or taken from one service provider to another.</p> <p>All of this, and more, needs to be considered, created, tested, and put in place by the time the GDPR takes effect. That means you need to start now.</p> <p><strong>Why is this important?</strong> </p> <p>Namely because the EU’s data protection authorities have enhanced new enforcement powers that include the ability to penalise an organisation up to €20m or 4% of it’s annual global turnover, whichever is greater.</p> <h3>Privacy Shield </h3> <p>While the GDPR’s impact will be huge, at the same time, the evolution of the digital world continues to sprint forward. </p> <p>Similar to the Berlin Wall, digital borders have come crashing down; allowing for the natural flow of data between Member States but also between the EU and US, its largest trading partner. </p> <p>Both economies are in fact dependent upon this fundamental notion. </p> <p>However, the fledgling Privacy Shield – a heavily negotiated replacement to <a href="https://econsultancy.com/blog/67144-safe-harbor-2-0-an-update-on-eu-privacy-law/">the invalidated US Safe Harbor Program</a> – recently received a tepid review by the Article 29 Working Party (WP29).</p> <p><img src="https://assets.econsultancy.com/images/0007/4343/safe_harbor.png" alt="" width="351" height="144"></p> <p>The Privacy Shield at the highest level is a mechanism that allows organisations to transfer personal data about EU citizens to companies in the US. </p> <p>It’s needed because the EU, for a host of reasons, has not recognised the US as a country that has “adequate” data protection laws, although the US does in fact heavily regulate data protection through a variety of laws and robust enforcement. </p> <p>But because of this political fact, a negotiated agreement that created a mechanism needed to be put in place, thus the Safe Harbor Program (which became obsolete), and now the Privacy Shield.</p> <p>Although many thought-leaders have concluded that the Privacy Shield provides essentially equivalent levels of data protection as EU law, the WP29 has chosen a more cautious route, one that whilst not rejecting it, also doesn’t endorse it. </p> <p>I anticipate the Privacy Shield will be heavily challenged in the EU courts, but that it will ultimately prevail. </p> <p>Any other result would have a tremendous negative impact on both economies, which no reasonable person could want.</p> <h3>ePrivacy Directive </h3> <p>On the 12<sup>th</sup> April 2016, the European Commission began its comprehensive review of <a href="https://econsultancy.com/reports/the-eu-cookie-law-a-guide-to-compliance/">the ePrivacy Directive</a>. </p> <p>Some call it the cookie law, which requires companies to give notice and get consent before they use any sort of tracking technologies or analytics tools when you visit their sites. </p> <p>The Directive also restricts how telecom providers can treat or move electronic communications. The review aims to close any potential gaps between the ePrivacy Directive and the GDPR.</p> <p>As a stakeholder in the process, I am aware how important it is to get it right. </p> <p>Of concern to me is the separate notice and consent requirement the ePrivacy Directive has from the GDPR. </p> <p>But I am also confident that the distinct transparency requirements between the two laws can be merged so the consumer can be well informed and make meaningful decisions that are best for themselves.</p>