Data is the new Oil. The European regulators brought PSD2 into force with a mandate for all banks to get compliant with the regulation by next year. I also discussed in one of my previous articles that GDPR could be an excuse that banks would use to not stick to the spirit of PSD2 and open banking standards.
The UK has gone one step further to create the Open banking framework that helps create data sharing capabilities within banking and an engaged developer community. However, in the US, banks have been notoriously lobbying against data sharing since Consumer Financial Protection Bureau (CFPB) released a set of questions on this topic for the public to answer.
Based on the responses to this public survey, it is pretty clear that customers wanted to own their data, and also would like to decide who the banks can share their data with. And they want the data to be shared safely and securely. It is widely believed that most banks (not all of them) in the US, would create enough bureaucratic barriers for small innovative companies to get access to their customer data.
The other technique they might follow is opening up data access to Fintechs just a few times a day. This might hurt the business models of many Fintechs that depend on real time availability of customer’s banking data.
On the other coast of the country, tech giants (Amazon, Facebook, Google and Apple) are gearing up to fight the banks to get access to their customers’ data. In the recent past a group called Financial Innovation Now has been setup by the tech giants, with a view to lobby for customers’ data.
These tech firms realise the opportunity they have in consumer finance, especially lending and loan intermediation. With a wealth of data around customers’ spending pattern, and on ecommerce peaks and troughs, Amazon for instance, should be able to recommend a financial product to the customer, and make an easy introducer fees.
Amazon and Paypal lobbyists have met with the Office of the Comptroller of the Currency (OCC) to discuss “issues related to mobile payments and payment processing, financial innovation, and technology”.
Large technology firms are really interested in the intermediation piece, where you have access to all that data.
– – Paul Nash, the former senior deputy comptroller
If firms like Amazon could get their hands on customers’ financial data through an API, they could be a serious threat in the consumer finance space. They just need to follow the path that Alibaba and Tencent took in China.
With the initial years of Fintech we saw many banks embracing (or pretending to do so) innovative technologies. However, with open banking, we may see reverse osmosis where the tech giants move closer to banking.
So banks now not only have to worry about Fintechs squeezing their top line, and regulators hitting their bottom line, but also have to worry about Tech Giants eating up their market share pretty quickly. Long Live Data.
Arunkumar Krishnakumar is a Fintech thought leader and an investor.
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