FinXTech Intel 2023 report final 2 - Flipbook - Page 24
WHAT’S OPEN BANKING AND WHY DOES IT MATTER?
By: Kiah Lau Haslett
The debate over data ownership in the United
States may soon come down to a set of questions: Who owns customer data? What if the
customers do?
“Policymakers hoping for increased competition and innovation reason that allowing customers to share their bank data
will allow new entrants and other banks to better compete for
business. This could lead to innovative entry, lower prices, and
greater access to financial products and services,” they wrote.
Executives may want to incorporate those questions into any
conversation they have with financial technology partners as
A form of open banking is arguably in practice in the United
they think about the future of banking, in addition to discus-
States, brought about by market forces and financial innova-
sions about privacy.
tion. But efforts to standardize the practice have been slowed
by “competitive tensions among industry stakeholders who
are not always incentivized to cooperate” and disagreements
To read more about privacy, find data generation
and privacy on page 18.
around “the scope of data access, permissible uses, liabilities,
and other related issues,” the researchers wrote.
Government regulation may clear up some of those issues
The reason is simple: Those questions may be answered soon
— if not to all stakeholders’ liking. The Consumer Financial
by U.S. bank regulators who have become interested in pro-
Protection Bureau announced in 2022 that it would imple-
moting what’s known as open banking. Broadly, open banking
ment Section 1033 of the Dodd-Frank Act to provide greater
gives consumers the rights to their data so they can share it
clarity around data ownership and other policy questions the
as they see fit.
market has yet to adjudicate, an effort that the U.S. Treasury
Department supported in a 2022 report.
“Data’s growing economic importance has led to an active
discussion around who should control the data generated
The final details of how that will play out remained unclear as
through private economic activity: a firm or its customers,”
of this publication date, but the researchers found that regula-
wrote researchers in a 2022 paper exploring the early impact
tory mandates globally seem to spur banks to acquire technol-
of open banking policies. “This issue is particularly salient in
ogy designed to share customer data and venture capital funds
the financial services sector, where banks’ provision of finan-
to invest in fintechs, which may lead to future innovations.
cial products inherently generates useful customer data.”
Ultimately, the biggest impact of open banking may be on
The researchers behind this paper included Tania Babina, an
the banks themselves. Broadly adopted open banking may
assistant professor of business at Columbia Business School,
eliminate banks’ advantages over customer data by lowering
Greg Buchak, an assistant professor of finance at Stanford
switching costs, forcing banks to innovate and compete to
Graduate School of Business, and Will Gornall, an assistant
retain their customers’ business.
professor of finance at the University of British Columbia’s
Sauder School of Business.
“Data lie at the heart of relationship banking and large
financial institutions benefit from their special ability to
Regulators in 80 countries had taken some step to implement
aggregate huge amounts of consumer data. Because of that,
policies that promote open banking, according to the paper.
removing banks’ monopoly on customer data has the poten-
Without a regulatory regime, it can be difficult for consumers
tial to transform the very nature of relationship banking,” the
who want to share or export this data to open an account at
researchers wrote.
another bank or sign up for a service from a financial technology company.
22 | FINXTECH INTELLIGENCE REPORT
Kiah Lau Haslett is managing editor of Bank Director.
POWERED BY BANK DIRECTOR