A breath of fresh air is blowing through the closeted world of banking – and the force behind this is greater data sharing. So what could it mean for customers and for risk managers, does releasing more information mean less control?
Technology advances and the rise of big data means there is now a wealth of intelligence available, some of which could be extremely useful for consumers and investors.
There are calls for this from a number of sources. The Investor Forum, which represents 35 of the largest investors in UK companies, has said that banks can re-connect with their customers and investors if they make better use of their data.
According to executive director, Andy Griffiths, this information should include more detail on culture and conduct. He said: “We want to encourage investors to ask more questions on these non-financial issues, like what do customers think about what banks are doing and we want banks to compete to give more information around these issues.”
He added that more disclosure of “standardised, verifiable and comparable” metrics on non-financial issues is among the key themes of the new Banking Futures research project.
This has produced two recent reports – covering long-term value for banks and the small business sector. These have been produced after extensive research among a range of contributors from industry leaders to those living in poverty and without bank accounts.
Recommendations for banks involving data include:
- Producing an annual report on customer outcomes
- Producing a summary of annual findings on internal risk management
- Showing how many unvested bonuses are recouped as a result of misconduct
- Showing how many investigations are taken
Meanwhile, the Open Banking Working Group, which comprises experts from across banking, data, consumer and business communities, wants to see significant changes in the way banks interact with their customers.
It believes consumers should have the option to grant trusted third parties access to their banking data, through open application program interfaces. These third parties will be able to offer consumers a range of solutions including:
- Budgeting tools
- Product guidance relevant to their needs
- Detailed price comparisons on products and switching
Customers will be able to see how they are managing and spending their money and so could act on any behaviours where there are problems. Banks equally can use this enhanced information to create products and offers that are most appropriate for that customer and hence are far more likely to secure buy-in.
The Midata initiative is already available and was launched in 2015. This is primarily aimed at helping consumers switch current accounts.
But, the technology has been described as “clunky’ and the Competition and Markets Authority has said it wants to see simpler technology and more sharing.Customers are able to download a year-long history of their banking transactions in the form of a CSV file. This looks similar to a spreadsheet and allows the customer to see how they are using their account such as in areas such as overdraft fees and foreign money exchanges. This can then be uploaded into the Midata comparison tool on comparison site, Gocompare.com.
Data sharing brings risk
Risk managers within banks will be only too aware of the problems that could ensue if customers are able to access their data. As a result, high levels of security will be critical to the success of open banking.
If the end results are higher levels of identity theft and fraud then this is going to prove a failure and risk managers will want tight controls on the third parties used. Much will also depend on issues such as authentication, customer consent and banks adopting the same standards.
These are exciting times and the potential of technology and data is poised to bring big changes to the ways banks can operate and how people make financial decisions. But issues such as privacy and security still prompt many questions – in these early days, there is still much to be decided.