Imagine a day in the not-so-distant future: you are on the train on your way to work, you check a dashboard produced by an app on your phone that shows your spending patterns aggregated from all your bank accounts. The dashboard shows that you are spending too much on entertainment and are falling short of your savings goal. During lunchtime, a digital mortgage advisor (which has been analysing your bank accounts) pops up with a “too good to miss” offer from a new entrant in the mortgage market. On your commute home from work you learn from a social media alert that a bank has a much higher interest rate on savings accounts than your current bank, plus a switching bonus of £200 for current accounts. While on the train, you use your mobile phone to go online and transfer your details and money in a matter of minutes to take advantage of the better deals. Three hours later your phone bill is paid automatically via direct debit from your new account which is now managed by your new bank. This is data portability at its best.
In the banking world, data portability is one notion that completely changes its appeal in accordance with which hat you are wearing. From a client perspective, it opens a brave new world of services that don’t yet exist and the opportunity to easily and seamlessly switch to a service provider with the most attractive offer (be it a music-streaming service, clothes retailer or a bank). For FinTech companies, nimble and innovative by definition, but still operating in the shadow of large corporate financial services organisations, it offers access to an enormous pool of historic data to which they can apply specific algorithms, giving insight into individual customers and services and ultimately enabling them to provide better and cheaper services at a lower cost. By contrast, from the perspective of large financial services corporations, data portability is a can of worms that goes against everything the industry stands for: client data security before everything, Chinese walls and complete isolation of data from the outside world.
These apparent contradictions are the result of a host of ambiguities regarding what exactly data portability is, how it is supposed to be implemented, and the ultimate issue of what is client data and who owns it? This question is rapidly moving from the philosophical realm into the real world as the newest data protection legislation, the EU General Data Protection Regulation (GDPR), is due to come into force in May 2018.
GDPR clearly defines client data as data that helps directly or indirectly identify a client and swings the debate of ownership in a client’s favour. GDPR also mentions data portability as an individual’s right, but falls short of indicating exactly what it is and how it should be implemented. Still, the fact that it is mentioned indicates there is an agreement in the highest echelons of the need to implement data portability as an engine for competition and that it is something to watch out for in the future.
Improved access to data would, without a doubt, improve competition in the banking sector. Successive reports commissioned by HM Treasury, the Financial Conduct Authority (FCA) and other regulators have been unanimous in saying that competition in the banking industry is severely hindered by the difficulties clients experience in taking advantage of the offers of competitors. For example, account switching from one bank to another was found to be a cumbersome process, often requiring additional documentation, despite clients being with the same bank for years. Data portability has been proposed as a solution to this issue, with the idea being that a client can choose who has access to their data, or even retrieve it themselves and hand it over to whichever institution they desire.
In 2013, the UK Payments Council launched an initiative called the Current Account Switching Service (CASS) aimed at reducing the number of days it takes to switch bank accounts to seven from 12. The campaign was unfortunately not particularly successful, with a report released two years later showing that the number of people switching current accounts in the UK had in fact fallen by 5 per cent.
So, what needs to be done? Is it time to put our trust in technology and leverage the tremendous innovative power of the data-savvy FinTech companies? Indeed, several solutions have already been proposed, ranging from standardised Application Programme Interfaces (APIs) (similar to the Know Your Customer (KYC) data-sharing initiative being developed by the Society for Worldwide Interbank Financial Telecommunication (SWIFT)), to centralised governing bodies that act as universal repositories of client data. With this last solution, a client can simply indicate which bank they would like to operate their account out of, and switching (along with the entire history of the account) happens instantaneously.
The question also arises as to what big banks and other organisations that sit on mountains of valuable client data need to do to prevent it from being snatched and used by competitors? The key, Brickendon believes, is to stay ahead of the curve in the adoption of data portability and become the preferred destination when clients start hopping from one bank to another.
Organisations should be innovative in the way they mine data and come up with new services to offer to clients. They should become agile to the extent that they can quickly replicate and adopt appropriate innovations brought to the market by their competitors and should review their data models, untangle data infrastructure and update the governance policies to clearly separate client data (as defined by regulations) from proprietary data owned by the bank. The goal should be to make it as easy as possible for clients to choose who they bank with, but not be bound for life by that choice. This a very important aspect of the customer experience which will allow new and former clients to join (or re-join) the bank and be integrated easily into their system.
More than 20 years ago, Bill Gates was quoted as saying: “banking is necessary, banks are not…” and there may have been more truth to his comments than he anticipated. Today, the role banks themselves play in the future of banking is to some extent in their own hands. The complexity of the road ahead is in effect a call to arms before the data portability issue officially hits the banking market with a tremendous surge of disruptive power. Going forward banks will need to employ top talent in areas such as regulation, data science, and agile transformation. In this aspect, Brickendon is uniquely positioned amongst its market peers and can leverage the accumulated experience earned from a range of successful projects in this overlapping regulatory and data space to help your business adapt. It will ultimately be an exercise of working side-by- side with the client to produce a uniquely tailored approach to make the bank a top performer in an exciting, but ruthless, world that is just starting to emerge.