by John Downie, CEO and Founder of SteadyPay
Okay, so perhaps it’s more of an open secret than something that banks don’t want you to know. But, data is gold. And banks and financial institutions are sitting on goldmines. Customer financial data has now become more valuable than the actual money in accounts due to its predictive power, product development potential, and market insights. What does this mean for the future of financial services?
How much financial data is really worth
Banks know everything about you as a customer. Every transaction, bill payment, and loan application builds a detailed picture of your financial life. This data is incredibly valuable for several reasons. It can help build a picture of the macro (e.g. broader market insights), as well as predict future behaviour and, in turn, shape product development roadmaps. It also helps banks identify upsell and cross-sell opportunities. And, while it has its faults, credit scoring can be a useful metric to quantify risk.
Banks’ reluctance to share this data openly isn’t just about protecting privacy – it’s about maintaining their competitive edge.
Data monetisation platforms like gooddata.com, gener8ads.com, and Caden are already sharing online behaviour for money, potentially leading to wider data democratisation. Banks already sell anonymised data to brokers who repackage and resell it, which is outlined in those customer terms and conditions you happily tick.
Younger consumers are increasingly less concerned about data sharing, viewing it as ‘normal’. While Barclays faced complaints about selling information in 2013/14, such practices are now more accepted, especially when done in the background via brokers. Banks could potentially add data sharing to their rewards programs to pass value back to consumers. An example of a direct data tie-up is Chase’s media solutions division, which allows them to profit from both advertising and purchases.
The future may see users explicitly opting into data sharing or paying higher fees/receiving fewer rewards. As long as there are no major data breaches, this trend is unlikely to erode trust in banks significantly.
The power of the consumer
As open banking becomes the norm, we’re witnessing a power shift. Consumers are having a lightbulb moment, realising the value of their financial data and demanding more control over it. This presents both challenges and opportunities for fintech startups. They can now leverage more powerful data, but also need to respect privacy concerns and stay compliant with regulations.
Established banks need to work out how to maintain their data advantage as everyone demands a slice of the pie.
In a world where financial data is recognised as a valuable asset, I think we can expect to see better and more flexible rewards systems for fintechs and others to plug into, centred around data sharing and monetisation.
Open banking-focused startups will also become more prolific, focused on data collection and brokering (e.g., connect your accounts, we’ll sell your data and pay you a commission). On the flip side, I think we also see an explosion of RegTech solutions focusing on data safety and usage transparency, potentially aided by AI (think Google Lens but for data).
But what about GDPR?
Ethics are nothing new in finance and fintech. However, there’s a need to balance data monetisation potential with user privacy and trust. This means we need better transparency about data usage, and more user autonomy and control over how this data is used. Security also needs to be watertight to prevent high-profile leaks.
It’s not just about compliance with regulations like GDPR, but setting new standards for ethical data handling in the financial sector.
Trust is hard to rebuild once lost, and so fintechs need to use clear, simple language and be upfront and make informed consent a positive experience. Data should only be sold to appropriate buyers (no black market, no gambling etc.), and users should be able to fine-tune permissions where appropriate.
David v Goliath in the data arena
For fintechs, particularly those in their infancy, competing with established banks in data collection and usage is a massive task. They often lack financial power and resources and the large customer base built over decades (which comes with large amounts of historical data).
However, fintechs are agile, which they can leverage to be innovative in their approach to analysing data. They can offer unique value propositions to encourage data sharing, as well as tap into alternative data sources that get tied up in the red tape of the big banks. They can also be first movers into proprietary, or advanced, analytics techniques.
Unlike banks that must cater to a wide range of customers, fintechs can specialise. This focus, along with agility, is their biggest advantage. For example, a fintech could become an expert in micro business spending and cashflow patterns, yielding specific business opportunities like optimum loan timing and pricing.
Unfortunately for the big banks, both consumers and fintechs know that data is big business. We’re at a watershed moment where the incumbents, over-reliant on a gluttony of customers and data, still move slowly in an industry which moves incredibly fast. The time to adapt, and to win, is now.
