Like many areas of the economy, the financial services sector is undergoing a data revolution. Companies are collecting more data about our financial lives, they’re using it to develop new products and services, and its economic value is increasing. Financial services companies collect more data on their customers than anyone else.
The government has accelerated this through initiatives to increase the flow of data. Open Banking, launched two years ago, allows customers to share their online banking payments information more easily and requires firms to allow third parties to initiate payments directly from a customer's account. Open Finance is set to extend this to all financial services companies, including pensions, consumer credit and investments.
It could bring big changes to the way we manage our money. Services developed using Open Finance could include a platform that allows people to view all of their products via a single interface, enabling them to switch more easily between providers. Consumers may be able to share their details with financial advisors in just a few clicks; potentially making access to expert advice more straightforward. Companies could gain more information to assess creditworthiness, potentially widening access to mainstream credit.
But it could also lead to greater exploitation and exclusion. People’s data might end up being used in a way that is not in their interests. For example, it might end up in the hands of firms selling them products they don’t need, or providing them with misguided or confusing advice. People might opt to have data about them shared without knowing where it’ll end up, or what it’ll be used for.
Just as in other sectors which have seen a significant growth in data-sharing, it might turn out that the biggest commercial opportunities are not in developing new products and services that benefit consumers, but in monopolies like Facebook and Google amassing data for their own purposes, with unpredictable consequences.
There’s a dangerous assumption that more competition will inevitably produce better outcomes. The governance of Open Banking is derived from an order given by the Competition and Markets Authority (CMA), with the aim of breaking up the power of the big banks. After two years, it’s hard to pinpoint any widespread benefit to individuals and communities, despite the number of regulated providers reaching nearly 200 and their customers passing one million. The positive impact of Open Finance won’t happen by chance.
There’s a dangerous assumption that more competition will inevitably produce better outcomes.
To maximise the benefits of Open Finance and other similar initiatives, the government and regulators must take steps to put real power in the hands of individuals, create meaningful protection from harm, and shape the market to encourage the development of products and services with a social purpose.
Open Finance may help to address some of the biggest challenges facing society, such as the climate crisis and the fallout from COVID-19. As millions are experiencing financial hardship, we need to better understand how data sharing could support debt advice services to reach and help the record numbers of people facing problem debt, and how open finance could support the responsible finance sector, including credit unions, to grow and flourish. Using Open Finance, communities of people could pool their data and build their collective power to bargain for cheaper services or increased benefits. And new services might be developed that allow people to identify – quickly and easily – where their money is invested so they can choose products that are more aligned with their values. A survey in September 2020 found that two thirds of savers are unaware of the carbon footprint of their pension pot.
There is no shortage of excitement inside government about the transformative potential of data. The National Data Strategy released in September 2020 lauds its potential to boost productivity, create jobs, advance scientific research, improve public service delivery and create a fairer society. Meanwhile, the new cross-government Smart Data Working Group is supporting the development and delivery of infrastructure and standards that allow data from a variety of sectors of the economy to be shared and acted upon, for the benefit of consumers, including vulnerable ones.
The fact that the government is taking a strategic approach towards realising data’s potential – and considering issues of fairness and inclusion as it does so – is welcome. As the uptake of Open Banking continues to rise, and the rollout of Open Finance begins, we are entering a critical period. Ministers and regulatory chiefs must be under no illusions about the level of intervention it will take to make these initiatives a success. They must be prepared to step in to shape the market in a way that is unprecedented and perhaps uncomfortable.
That means working with consumer organisations and civil society groups to understand the real-world benefits that data sharing in finance can deliver. It means providing support and funding for organisations which are developing products with a social purpose and that have business, governance and ownership models that challenge that extractive and manipulative nature of the platforms of surveillance capitalism. And it means understanding where there is a risk of people experiencing harm, adapting regulation in real-time as the impacts on individuals and communities become clear.
There’s a lot we don’t know about how the data revolution will unfold. Only time will tell what new ideas emerge, how consumers and society respond to them, and what unintended consequences flow from people’s changing behaviour. What we do know is that over the past two decades, the governments’ hands-off approach to the data economy has been disastrous. Hopefully, as data-sharing in finance gathers pace, we are now turning a corner.