A study finds that new regulations that could herald an era of open banking may provide the UK economy with a £1 billion boost. But this is just the tip of a data iceberg, and investors need to be open to the new ideas that this all means.
Open banking and the new oil
PSD2 is one of several forms of regulation coming into force that, between them, will transform the business landscape. PSD2 itself is also known as Open Banking – it means that your bank will be required to pass on your data to third parties, with, and this is the key bit, with your permission.
This is all begs the question, why would you do that?
And this takes us to the crux of one of the most important business challenges and opportunities of our time, squaring the rights of consumers for privacy and the opportunity that data provides to business.
Lack of trust and opportunity
A recent survey by ForgeRock found that 57 per cent of UK consumers are worried that they have shared too much personal data online. 53 per cent said they would not be comfortable if their personal data was shared without their permission and a further 58 per cent said they would stop using a company’s services completely if it shared data without permission.
Yet there is incredible opportunity too.
Last year, an editorial in the Economist said that big data is the new oil – it is the new commodity to grease the wheels of the global economy.
And a survey by the Centre for Economics and Business Research (Cebr) found that the new Open Banking regulation will provide the UK economy with a one-billion-pound boost, because of the extra competition it will bring.
So, we have this paradox. On the one hand, data is a massive economic opportunity – on the other hand, consumers feel uneasy, to put it mildly, about the whole idea.
What is Open Banking?
These days, to state the bleeding obvious, you can do a lot with your phone. Suppose a start-up, with some radical new idea, reckons it can use the information contained in your bank account to offer you a service that would be incredibly useful. An example of this might be an app that tracks your spending in real time, projects how much money you will have left the day before pay-day and enables you to drill down into your spending and call up money saving tips. Such services already exist – but the banks themselves are not so good at offering them. I am aware of one particular private company, Monzo Bank, that does precisely this. Up until recently though, it could only offer this service via a pre-paid card, creating a useful but limited service. The Open Banking regulation means your bank is legally obliged to furnish such a company with all the data it needs to provide you with this service.
And those who want to see more competition in the UK banking scene love it.
For example, Trustpilot's senior Vice President, Glenn Manoff, said recently: “By giving customers the choice to provide their financial data to third parties, Open Banking is set to unleash significant innovation across UK financial services. The new standards will also increase competition and remove information barriers as a plethora of new fintech players access the data necessary to provide compelling new services.”
This, in turn, creates an opportunity for Fintech and challenger banks, and could create an opportunity for established banks, but only if they learn how to embrace Open Banking – I would say that by lowering barriers to entry, Open Banking does leave traditional banks more exposed than ever before.
But here is the rub, consumers, as the aforementioned survey shows, are uneasy about all of this.
The Cebr put it this way: “The degree to which these economic benefits are realised is dependent on the readiness of consumers to consent to sharing data.”
But Open Banking is just one of several pieces of legislation. The second working day of this year saw the introduction of MiFID II, bringing with it transparency to the financial sector. And May 25th sees the General Data Protection Regulation, a hornet’s nest of new rules, imposing tightly defined conditions concerning the ways in which companies can use personal data and draconian punishments for transgressors.
I saw a recent comment in the FT describing GDPR as ridiculous legislation that will have the sole purpose of making life difficult for business. In fact, the reality is quite different – it is designed to engender trust, persuading consumers to trust businesses with their data.
We are entering scary times – and I am not just talking about Trump tariffs and Putin sabre rattling. Technology is set to change the world in a very big way, creating incredible opportunities for business, investors and indeed consumers. Regulations such as GDPR are there to try and ensure we get the good from technology and avoid the bad.
In 1948 George Orwell’s most famous book was published, and with it, the phrase Big Brother leapt into the popular imagination as short-hand for a state in which no one has any privacy, whatsoever. Later, of course, the phrase was hijacked by television to make a reality TV show, in which we, the viewing public, became big brother.
Regulations such as PSD2, GDPR, and MiFID II are designed to protect the public, as the era of data begins to transform the economy.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.