My radical 3-point plan to ensure Open Finance works for all

FCA Innovation - Open Finance Sprint

This time next week I’ll be attending the FCA’s Open Finance Sprint. It’s a 2-day collaboration to inform and enable the technology, commercial and legal building blocks that will be required to make Open Finance work.

It’s also a chance to have some fun. We’ll be building on what we’ve learned from Open Banking and asking ourselves what Open Finance might look like in 2030 with a focus on personal financial resilience, financial wellbeing and financial growth. 

Remind me, what is Open Finance? 

Open Banking was designed to create competition in retail banking by giving customers the right to share their current account and credit card data in return for better products and services, ideally provided by new entrants. Open Finance takes the same principle of customer data sharing and applies it to even more financial products such as savings, mortgages, investments and pensions all within a safe, secure, user consented API technology and regulatory framework. 

How is Open Banking going?

Whilst the OBIE’s data shows steady growth in successful API calls and payments there’s so much more that could be done to unlock the potential of Open Banking and Open Finance data sharing. I think the challenges and opportunities are these:

 1. Value for consumers = how can I turn my data into something I can spend?

2. Value for product providers = how can I turn data from a cost to a revenue?

3. Value for innovators = how can I invest in data solutions knowing I’ll get paid?

4. Value for Government = how can I use data to solve market failures?

So, what's my plan?

I’ve developed a bold and deliberately controversial 3-point plan to address these systemic issues and get the conversation going. I've used the Consumer Duty as the guiding principle to ensure that any solution must help customers to:  

-              Buy the right products & services

-              Pay less, or avoid paying too much, for products & services

-              Access support & information at the right time and in the right channel

-              Switch or transfer to get better deals

1.    A data ‘Standing Charge’ – payable TO customers:

There's currently no mechanism for consumers to be rewarded by product providers for the inherent value in their data. A strong value exchange is so important in making data sharing work. In some use cases it’s obvious…i.e. I share my bank account data and get a better loan price or a faster decision. 

But I’ve seen so many firms sitting on hugely powerful data and insights that could transform how they serve their customers and yet those firms have either no idea what to do and/or no incentive to act. Inertia rules. 

So, my proposal is to mandate a price for the inherent value of customer data that must be paid to the customer by the product provider simply for ‘holding’ or ‘accumulating’ the customer’s data. For example, a customer would be paid (and I’m making up the numbers) £10/month by their bank for a current account, or £2.50 a month for a mortgage. 

What would be the impact? I suspect most product providers would seek to offset that cost which they could do in several ways. First, they could use the cost to justify business cases to use more data to automate processes or remove operational and financial risk. Second, they could sell the data (potentially augmented and always with the customers consent) to other product and service providers using their market reach and scale to help consumers get more value for that data – effectively acting as a data intermediary on behalf of the customer. Maybe data intermediaries would spring up to make this happen.

Or third (and this is controversial, though see point 3 below) by exiting customers that don’t really fit their business model and that would be better served by new entrants to the market. 

From a customer point of view customers would immediately see a return from their data and could be attracted to buy alternative products and services by being offered better prices for their data by innovative, data centric firms who are prepared to pay more to access that data. 

2.    Best available data by design:

Since the FCA implemented the Consumer Duty it’s said repeatedly that firms need to do more to identify new sources of data to monitor customer (not process) outcomes and to do so proactively and in real time. So, my second proposal is to mandate that when designing journeys and processes, firms must always use the best available source of data in the market. For example categorised transaction data or API connections to real balances, or investment fund holdings or insurance terms. 

Whether it’s fact finding, product targeting, product onboarding, vulnerability, affordability, suitability, targeted support or ability to bear a loss, a product provider would need to demonstrate their decision making, processes and journeys have underlying audit trails based on the best available data that is sharable in the market and not on manual processes or proxy data sources.

Consumers would no longer have to remember or guess when it comes to sharing information about their financial circumstances and third-party firms that are skilled in developing data sharing tools and great customer experiences would be able to develop new solutions confident that there is market for them.   

3.    Rewards for Social Value

The consequences of a lack of access to affordable credit, the poverty premium or low financial resilience and capability reach beyond financial outcomes and can manifest in the form of family breakdown or physical and mental health problems.

So, my final proposal is that Government makes social value reward payments to product providers and innovators who, when using data sharing, can demonstrate a real impact on individual or community outcomes alongside financial outcomes. 

Mainstream product providers could collaborate with specialist providers who have the best understanding of customers' needs and who are able to demonstrate social value, for example Credit Unions, CDFIs, or technology innovators. Those mainstream providers could add these data powered specialist services into their own eco-systems or use customers' data to match those customers to a product provider who is better suited to their needs. 

The process of transferring customers to new and better providers could be super quick and easy by allowing customers to port their entire data history. Innovators could have confidence that funding was available to develop, test and launch new solutions in to the market that fix market failures. 

Disruptive, or innovative? What do you think?

It’s often said that most disruptive innovation is neither disruptive, nor innovative. The acid test for both is whether underserved customers’ needs are met and new revenue streams generated. I like to think there’s the bones of a disruptive innovation in my plan.

I’m excited to hear counter views and new ideas at next week’s sprint and to explore these themes further. In the meantime, what do you think is required to make Open Finance work for all?

 #FCAInnovation

#FCAOpenFinanceSprint

I’m Simon and I like to think about that space where macro and micro money meet.

I believe that the way we think about money needs to change so that we can design better and more sustainable personal financial services. Unlike a household, a currency issuing Government can create infinite money by spending it into existence. However, as a society we often get worried about our Government’s debt when in reality the equal and opposite of that debt is in fact our nation’s collective wealth.

So sometimes it makes sense for a Government to do things with its money that firms and people, who are currency users, have neither the financial resources, capacity or risk appetite to do, especially when it comes to addressing the real deficits in society such as climate breakdown, biodiversity, poverty & inequality, or unemployment.

Modern money is just an accounting tool that is used to direct the real resources in our economy.  Whether it's raising incomes and living standards, access to timely and affordable credit, building affordable homes, saving for the future or drawing a sustainable retirement income I think it’s important for Government, product providers and consumers to collaborate and use the right type of money in the most effective way to meet our needs within planetary boundaries.