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Fintech Industry

Open Finance and the future of data sharing

by Mike Jones in Other Cat 13/05/2021

While it’s not considered like this, data could be interpreted as one of the most important commodities on our planet. Every day we produce data, businesses collect it, extract useful information, convert it into actionable insights, and then develop new products and services. 

Data sharing refers to an agreement that involves waiving privacy for commercial purposes. Customers benefit by having higher access to relevant products which financial service institutions benefit from enhanced marketing and development opportunities. 

In a recent article by Deloitte called ‘The next generation of data sharing in financial services, the FSI benefits of data sharing are split into 3 key categories:

  1. Inbound data-sharing and converting this into more focused decision making.
  2. Outbound data-sharing enables businesses to harness capabilities that may be missing from their organisation.
  3. Collaborative data sharing allowing businesses to develop richer, larger and more detailed datasets than possible with siloed data.

Despite the clear mutual benefits of data sharing, there are still several challenges and issues to overcome. For customers, there is caution with sharing sensitive information. Statista discovered that over 44% of US fintech app customers had experienced some level of reluctance in terms of information on accounts, loan or investments. Another survey conducted on behalf of IBM discovered that only 20% of customers had complete trust in businesses to maintain their data. With major data security breaches rising, it comes as no surprise that customers are a little hesitant with sharing their information.

 

What are the key benefits of data sharing?

For the institutions, it means better decision-making and the ability to broaden their capabilities and generate greater volumes of data. For the regulators, it enables further innovation and effective system oversight. Customers have access to higher quality and more relevant and efficient products.

 

What are the drawbacks of sharing data?

For institutions, there is the potential of breaching privacy regulations and impacting relationships with customers. Similarly, regulators could experience possible cases of breaching customer privacy and customer’s data may be mishandled or misused.

Data sharing does come with risks for FSI; developing a scenario of openness could eliminate competition bypassing too much information to rival businesses. Evolving privacy regulation could be breached by changes in technology.

 

The value of Open Finance

Open Finance is focused on empowering customers, giving them the ability and control to reuse their financial data in new and innovative ways. It does this by enabling third-party providers to securely access data and put it to work for the customer. This can be done by:

-Consolidating accounts into a unified view

-Enabling electronic data transmission that eliminates the necessity for physical documents when applying for financial products

-Using data as a method of identity verification

This is all included in open banking, allowing for a more direct consumer-banking relationship. Customers are increasingly looking for financial data aggregation services because it makes personal financial management simpler and more accessible. Banks and fintech both want to represent the primary platform for financial services and are currently competing to retain and attract new customers.

 

Implemented in the right manner, the benefits of Open Finance for both customers and businesses make it an attractive option. There is, however, a constant security concern. Data sharing, at any level, should remain a top concern, with each section of data requiring the appropriate level of protection and ensuring customers have an understanding of how and why some data is used. Informed consent involves understanding the implications of sharing before approval. It’s clear that aside from general clarity with data sharing policies, customers also need examples that show why APIs are beneficial and what exactly Open Finance can do for them.

A recent partnership between TrueLayer and UK digital bank Monzo showed this in action. With customers using Open Finance as a payment option for online gambling, Monzo required a solution to protect at-risk customers by blocking certain transactions to selected gaming sites. TrueLayer started working with Monzo, implementing a specific API capable of notifying the bank whenever a customer with gambling restrictions on their account attempted to pay via Open Finance. TS Anil, the CEO of Monzo praised the partnership, stating that it was simple to develop and capable of protecting thousands of people. Such examples in the finance industry will be critical in convincing customers that data sharing can be responsible and support safeguarding.

Data sharing via Open Finance is a route towards enhanced convenience, better products and considerably cheaper operations for FSIs. Ensuring customers understand the benefits will be the priority and experts highlight that managing physical financial documents will become a thing of the past.