WHOSE DATA REALLY IS (1 / 2)

In the financial industry, it has always been implicit that customer data belongs to the companies that generate it. Today, Open Banking questions that rule and proposes a fairer alternative for users.

Before Open Banking (OB), only the bank in question could access the financial data of its customers. However, thanks to efforts led by regulators and consumer rights organizations, the data will belong to the account holder. Through a series of government initiatives, it has been possible to redefine data ownership paradigms in order to unlock its value in the market.

However, it should be noted that Open Banking will promote the empowerment of consumers by allowing them to make the decision to share their data with other institutions. With this, it would also be possible to eliminate information asymmetry and allow greater competition.

With this, you will be able to determine with whom you share your financial information (including transaction history). Why is this decision so important? Imagine the times before Open Banking, where only your bank could access your information and the benefits of free competition and equal conditions were limited. Now, a financial institution can use the data of, for example, your flow of funds to offer you a better rate on the credit card or on the personal loan that you obtained with another institution. 

Certainly, there are companies that oppose Open Banking, since they perceive data control as a competitive advantage. In the short term, and short-sightedly, the advantage is only for a handful of companies, but at a high cost for masses of consumers. Traditional banks, especially the big banks, mistakenly think they have a lot to lose from the advent of Open Banking, and in some countries advocate regulations that aim to maintain the status quo. I believe that this obstructionist position lacks vision. In fact, big banks figured out how to “turn the tables”. BBVA in Spain and Itaú in Brazil are two close examples.

Just like them, financial institutions of different sizes that consider themselves agile and digital can take advantage of data access and payment processing. Fully understanding how much money a customer receives and how they spend it is extremely valuable information that leads to a variety of innovations.

On the other hand, the Big Techs are also taking a leading role in the financial sector. Thanks to the use of OB APIs, they have begun to include accounts and payment services on their platforms. They undoubtedly have considerable advantages, even over the most advanced companies in the financial sector, as they have large user bases, are digital natives, know how to process and use data efficiently, and also specialize in developing algorithms and AI solutions. . Although they have everything to be a formidable competitor, their entry into the financial sector is necessarily discreet and gradual for fear of antitrust regulators.

Regardless of the opportunities, the OB's inescapable requirement is client authorization, which means trust will be the determining factor. With regard to this point, financial institutions have tended to be very pharaonic: their buildings are large and pompous, as this is how they projected solidity and gained the trust of consumers. However, this concept has changed considerably in the last two decades, and any company, regardless of its size, can build trust today. In other words, building trust no longer requires huge investments and tons of assets. On the contrary, companies only have to be coherent and consistent with their principles and their value proposition, respect the voice of the customer, and use social networks effectively to communicate it.

There are two types of services that emerge with the OB: Account service providers and payment service providers (ASPs and PDPs, respectively). 

ASPs access accounts and transaction details from multiple banks to provide customers with a consolidated and intelligent view of their financial situation and habits. Various use cases for ASPs exploit computational power, which is becoming more accessible and democratized, to apply analytics and artificial intelligence to raw data. This results in relevant information for your customers.

The business model of ASPs is similar to that of companies like Google and Facebook, which rely on their customers to provide personal information in exchange for services. Here the old saying applies: "If it's free, the product is you", because by offering a product or service that can attract a target audience, they close the financial equation. ASPs can also monetize through the sale or distribution of information to other companies, which in my opinion borders on the antithetical.

There are several use cases for ASPs worth listing:

• Overview of income, expenses, loans and investments
• Budgeting advice and guidance
• Consolidated Subscription Management
• 24-hour bank account access
• Effective savings tools 
• Personalized and simplified

Unlike ASPs, Payment Service Providers (PSPs) in the OB context can make payments on behalf of their customers, directly accessing their bank accounts without the need for credit or debit cards. In a broader sense, PSPs make shopping online easier, simplifying integration and increasing the payment options that e-commerce accepts. Thus, instead of dealing with multiple acquirers, integration with a single PSP would allow them to offer their customers several payment alternatives.

PSPs are expanding the range of services they offer to merchants, their main direct customers. In addition to OB integration, PSPs have been integrated into “buy now, pay later” platforms and instant payment solutions that, like OB, process payment directly into accounts or electronic wallets. Cases of use of PSPs oriented to the final consumer, facilitate the payment of bills and receipts, and complement the applications of ASPs mentioned.

For this reason, the payment front in the financial sector is one of the most dynamic. Blockchain, OB and instant payment solutions are providing opportunities for innovation and therefore entrepreneurship.

Open Banking is the first step towards opening up the financial sector. It is followed by Open Finance, which allows consumers to open their entire financial footprint, including mortgages, savings, pensions, insurance and consumer credit.

Although there are already numerous use cases in countries that have adopted OB, we are only seeing the tip of the iceberg. During the early stages of OB, most use cases focus on loans and credits. Currently, a good variety of use cases are already observed in these markets, such as personal finance, means of payment, insurance and others.

Open Banking offers tremendous possibilities for innovation, whether in a startup or an established financial institution. In that sense, the disruption is imminent and it only remains to be decided if you want to lead the change or wait for circumstances to force you to change.

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