Opening up banking: Building data decency into financial networks

Before COVID-19, the rise of open banking had already set off a race around the globe to transform the financial services industry. Catalyzed by regulations in Europe and commercially embraced in Asia, open banking allows third-party developers and financial technology companies to access customer information and transaction data held by banks – at the request of the customer – for use in new applications and services.

Consumers and businesses are now more dependent on technology as they contend with the “new normal“ of living with the challenges that COVID-19 presents. Indeed, the benefits of increased digitisation enabled by technology are clearer than ever as we have all become more accustomed to using remote banking services, contactless transactions and on-line shopping as we have adjusted our lifestyles.

Whilst adjusting to meet the external environmental changes created by COVID-19 has slowed the progress of open banking within financial services, it has also increased the market opportunity. With more users embracing digital commerce, there is greater potential for open banking to create even more value for consumers and businesses alike.

The course ahead for industry players requires skill and careful navigation to win. Prior to COVID-19, technology had already accelerated the rise in customer expectations for personalized services and convenient, intuitive digital experiences. Now, winning companies will be the ones who can keep up with both the rapid changes to lifestyles and customer expectations.

To do so, they must keep a singular focus on delivering value to their customers. They must aim to deepen their customer relationships, innovate across experiences and – most importantly – adhere to the highest standards of decency in data sharing and privacy.

How open banking is changing the consumer experience
Open banking is designed to empower consumers by creating a mechanism that allows them to share their data securely within the financial services ecosystem. This compels banks to make aspects of their customers’ transactional information available to new fintechs, digital banks and technology solutions from the banks themselves – all of whom are looking to create faster and better customer experiences that deliver simple and attractive economics across multiple digital channels, with a focus on mobile – provided the access and use for that data is clearly communicated and explained.

This is driving significant experience improvements for end users. For example, “challenger” bank Revolut has turned the painful and extended account opening process at banks into something that can be done in 60 seconds on a mobile phone.

And thanks to improved capabilities from so-called “re-platforming” as well as partnering with innovative start-ups and Fintech’s, traditional banks are upping their game by delivering new and compelling digital services for their customers that are much easier to use.

As a result, the further expansion of open banking is sure to accelerate the digital transformation in the financial services industry as new players together with the incumbents compete to offer superior products and services across an increasingly diverse range of consumer and business segments.

Building data responsibility into networks
The fuel for all this change is data. Consumers are well aware of this, with 72 percent around the globe paying attention to how companies collect and use their data, according to a recent study by Harvard Business Review Analytic Services, sponsored by Mastercard.

In today’s digital economy, too many companies are hiding behind the impersonal nature of the internet to try to protect themselves from this growing scrutiny. But personal data is just that. It’s personal. Everyone in the ecosystem – from banks and fintechs to merchants and other service aggregators – must recognize that they are responsible for ethically managing consumer data and building this reality into their data networks.

The most successful players won’t just deliver the most relevant and useful insights from their data for the benefit of customers. They will also demonstrate the most respect for how that data is used and stored.

This calls for a radical change in the relationship between financial services institutions and their data producers (consumers). The financial ecosystems of the future cannot focus primarily on what data can do for them, but what data can do for the customer.

To drive this shift, all financial services players should put data decency at the heart of their design and architecture. This starts with prioritizing data security and privacy above all – and then using that data to develop products and services that offer superior value to customers.

Companies must also provide full transparency in how data is used, as well as offer customers the ability to review, revise and delete their data. As consumer awareness around data privacy naturally grows, organizations that respect data in this way will have a significant competitive advantage.

Data decency further demands consistent and well-tended cybersecurity protections. To avoid compromising consumer trust, companies must design, and then build-in the right control processes into all automated risk, cybersecurity and related AI-powered systems. This is to ensure that there is human oversight as well as the ability to identify, assess, quantify and react to points of vulnerability.

Keeping pace in with open banking in Asia
Asia’s consumers are adopting new technologies faster and more enthusiastically than other parts of the world, which is fueling open banking in the region.

Their digital drive is opening up financial access to many people who were underserved, creating new consumer markets and speeding up the race for data and insights. This means there are vast amounts of growing and disparate pockets of valuable information that retailers, banks and fintechs are seeking to pull together.

Superapps like Alipay and WeChat in China, or Grab in Southeast Asia, are already rushing to create these connections by expanding the services on their apps and capturing more and more consumer data.

They’re not alone. According to Harvard Business Review Analytics, among Asia’s businesses, 60% are measuring the customer experience across all touchpoints and using this information to develop better products and services, versus around 45% in Europe and North America. Also in Asia, 71% are already innovating to ensure consumers benefit from business use of their data compared to 62% globally.

In this highly competitive environment, no financial services player – on either the tech or banking fronts – can keep up alone. Strategic collaborations accelerate channel access for consumer interactions, opportunities for consent-driven data sharing and pathways to develop new capabilities. They can also help to mitigate risks around data management, privacy, storage, analysis and use across multiple jurisdictions.

Change will be constant
Open banking is just beginning. The new connections and customer experiences that it will enable are only going to expand with the rise of 5G next generation technology and the greater interconnectivity of the Internet of Things.

In the not too distant future, consumers will expect financial services and healthcare companies to collaborate for faster pre-approvals and claim payments. They’ll want schools and banks to better use their information to clear student loans. They’ll want retailers and logistics companies to process shipped returns faster.

To keep up, banks and technology firms must always achieve a balance between the insights they derive from consumer data and the value they provide as a result. This balance is best achieved when data decency is placed at the operational core of the business.

Responsible data practices are sustainable business practices, and a culture of data decency enables organizations to innovate responsibly. If all companies in the ecosystem embrace data decency principles, more and more partnerships will also be available. This will ultimately empower everyone in the open banking ecosystem to thrive together.

Core principles of data decency

1. Elevate data decency as a core corporate value
2. Respect that consumer data is personal
3. Ensure consumers are the beneficiaries of their data assets
4. Enable consumers to own and control their data
5. Provide consistent and well-tended cybersecurity data protections