Open Finance Is National Infrastructure
Is it time for a National Wealth Service?
Dateline: Woking, 14th February 2024.
I went to Las Vegas for Money20/20 last year, one of the lighthouse events for me and a great many other fintech fans. I’m not saying this to make you jealous — although you should be, because I had a lot of fun — but because I was thinking about how Cameron D’Ambrosi wrote in a Liminal newsletter (with reference to the 2022 event) that Money 20/20 "isn't a digital identity conference, but payments are more anchored on digital identity than ever before". I couldn’t agree more. I was therefore not surprised to see plenty more talk about digital identity there last year, which was great because I never get bored talking about digital identity.
What I spent even more time talking about though was open banking. It has arrived in America.
Stacked
I wrote before that governments across the globe were embracing open finance and noted that the Consumer Financial Protection Bureau (CFPB) had committed to finalise open banking rules for the U.S. by the end of this year. The Director of the CFB Rohit Chopra said on stage at the 2022 Money20/20 that the Bureau would propose requiring financial institutions offering deposit accounts, credit cards, digital wallets, prepaid cards, and other transaction accounts to set up secure methods (such as APIs) for data sharing. Well, they have.
The CSFB were on schedule and they published their draft "Required Rulemaking on Personal Financial Data Rights” at the 2023 event. These proposed rules are, make no mistake about it, a big deal.
with kind permission of Helen Holmes (CC-BY-ND 4.0)
Just to give a little context, the proposed Personal Financial Data Rights rule activates section 1033 of the Consumer Financial Protection Act of 2010 (CFPA) and aims to increase competition by forbidding financial institutions from hoarding a customer's data and by requiring companies to share data at the customer's direction with other companies who may be offering better products. The proposed rule would allow people to break up with banks that provide bad service and would forbid companies that receive data from misusing or wrongfully exploiting sensitive personal financial data.
(When it comes to the issue of increasing competition, by the way, there is no love lost between Mr. Chopra, the big banks and their trade associations and consortiums. The Bureau has made clear it hopes that open banking will support increased competition by making it easier for consumers to compare and switch providers, whether for checking or savings accounts, credit cards, loans, or mortgages, bringing to the market a dynamic not seen as an unalloyed benefit by the incumbents.)
To summarise, the proposed rule would require depository and non-depository entities to make available to consumers and authorised third parties certain data relating to consumers’ transactions and accounts; to establish obligations for third parties accessing a consumer’s data, including important privacy protections for that data; and to provide basic standards for data access. The CFPB want to ensure that consumers have the legal right to share their data free of what they call “junk fees” and switch accounts with ease to get better deals and better services.
The Open Data panel at Money20/20 in Las Vegas (2023).
I am very much in favour of the proposed rule because it will stop financial services players from “hoarding” a consumer’s data. I took to the stage this year to join the Money20/20 panel discussion on “Open Data” (well chaired by Michelle Beyo) and made the point that while open data stands to increase GDP, it depends on data flowing around the economy and not sitting locked in vaults or serving as a moat against competition. We as a society need open data, and open financial services are a good place to start. We need to get out of this era of data hoarding where companies are now storing any and all of the data that they can get their hands on just in case it will be worth something in the future. As it sits in these hoards, data is not working to the greater good.
Healthy Opportunities
There is a great opportunity for fintechs who can use that data. Just as the doctor needs X-rays, bloods and histories, so the AI that powers an effective financial health provider needs your transaction records from your checking account, your mortgage, your pension, your insurers and everywhere else. Now, obtaining this data and using it is a difficult area to exploit because it has to be done within the bounds of regulation (e.g., GDPR) and ethical "financial health" boundaries, but it does seem to me that the open banking environments emerging around the world means that consumers should find it easier to deliver this data to the financial institutions that want to provide a good financial health.
Business Case
It is important to put this data to use. In the current economic downturn, to highlight the obvious example, many people make a lot of mistakes in managing their finances. Most of these mistakes are very basic. It does not take a giant supercomputer and all of the data in the word to stop people from falling into common traps around the way they borrow, save, spend and invest. One might imagine a situation where employers strive to improve employees wealth, just as they provide health benefits now by funding financial counselling as an employee benefit.
The cost of providing these kinds of financial health services, in a world of AI and machine learning, is affordable and delivers something of real value to the normal person who is, frankly, as ill-equipped as I am to make decisions about pension plans and savings and so on. This is why I am so sure that the connection with open banking means the potential for a real revolution in consumer finance and this time it will be a revolution that will make life better for the average consumer.
Incidentally, while we are on the subject of financial health, I am very pleased to announce that the Future of Money Design Awards are back this year! Thanks to the very kind sponsorship of Moneyhub, the 2024 awards are looking for arts students to think about “The National Wealth Service”. Here’s an extract from the brief to get you thinking…
The National Health Service was created to take care of the workforce of Britain. Not only to keep citizens well for their own sake, but also for the sake of the country that relied on their productivity, labour, or expertise. In this respect, competition gave way to collaboration and individual health became of collective and national interest.
The NHS helps maintain our bodies and minds, but arguably another factor in society impacts longevity and life as much as health… wealth. Yet wealth isn’t seen as a collective goal. Could this change? If we were all wealthier, tax returns increase, GDP increases, and quality of life improves. Wealth and how we frame it is so much more than individual benefit.
What if we could do for wealth what we did for health? What would that look like? What would a National Wealth Service provide to the citizens of the UK? What role would it play?
If you know a talented and creative thinker in the arts, please do send them the link!
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Thought provoking. Dave and I are friends.. friends that disagree on a few things. My push back here
1) Governments have prescribed powers (at least here in the US). I don't want them building data rails for commercial or banking applications. They certainly have roles in protecting consumers and regulating banks. We all agree that banking data belongs to consumers. But data transfer rails should NEVER be national infrastructure. Rules and Laws are much different than tech. Rail lines, Airports and ports are not national infrastructure, they are owned and operated by commercial entities or local governments. This provides "options" for the users of the infrastructure and ensures that market forces operate on pricing and quality of service.
2) AI and banking data. As the founder of commerce signals, I was one of the first companies to take card data "into the market". As an ex Googler, our model was simple we determined intent by what you search for.. then we provided a market for advertisers to act on that intent. Search does not always match up with actual behavior (ex search for Ferrari or Lake Cuomo). Payment data is actual behavior and is MUCH more predictive. Looking at your purchases and time I can tell where you are, where you are going, when you are away from your house. Where your kids go to school. It is a gold mine for both legitimate and illegitimate activity. The innocent mistakes you mention above with banking are nothing compared to the potential mistakes a person could make in letting this data out. And once it is gone.. it is forever gone.. and infinitely replicable.