Who should bear the cost of data sharing?
Open finance aims to promote greater digital innovation in a sector notoriously slow in providing digital-based consumer services. In our first blog post, we will dive deep into who should bear the costs of developing and operating open finance based services.
What is open finance? For consumers, open finance entails sharing their financial data in a controlled way with third parties through secure connections powered by APIs, enabling a seamless and personalized customer experience. In turn, banks, insurance companies, fintech companies, and other financial platforms get fast and reliable access to accurate financial data, allowing them to create innovative products uniquely designed to meet specific customer needs.
It’s time to adopt a consumer centric approach. Consumers do not get charged to access their data on their bank or insurance companies’ websites. Why should data on APIs be any different? Consumers should have the power to control their data. Adding additional costs to access data fundamentally erodes the right to access their data about products they are already paying for. Likewise, data holders should not be able to recover costs for sharing data - this perspective is too industry centric. In addition, making consumers pay for their data hinders competition and tilts the playing field towards the incumbent services provider. Open means accessible, for everyone. Open finance cannot come with required payments attached to it.
Rolling up our sleeves - how can we ensure a consumer-centric approach when it comes to the costs of data sharing?
- Adding a unit cost per API call is counterintuitive to GDPR.
Access and accessibility are at the core of the General Data Protection Regulation (GDPR). The consumer has the right to freely access their data in a portable, machine-readable format. Additionally, under the GDPR, the consent for data handling is given freely - which means without influence (e.g commercial influence). Charging consumers for access to their data in a portable way will directly result in the opposite - compromising consent.
- A single-cost model per API call would make the mistake of assuming that the value of all use cases and data points is the same.
Each use case enabled by open finance has varying value propositions for the actors involved (consumers, insurance companies, banks, third party data facilitators, fintechs). Providing a common cost model for all API calls will create a market imbalance that favors higher ROI use cases, which will ultimately put the consumer’s needs last. ROI-driven actors (everyone but consumers) will prioritize services which are most profitable rather than those which are most altruistic (i.e. empowering the consumer). Use cases that are not leading to significant ROI will thus not be offered to customers. One example of a specific risk is that low-margin personal finance management apps will not be able to utilize the data, which in turn will counteract the ambition in innovation that the EU regulators want to see.
- Technology providers will find other ways.
Today, there is data sharing in the open finance space (PSD2) founded on national legislation. If charges are imposed on the official APIs, we believe that TPPs (third party providers) or the equivalent will not use the official APIs. Rather, we risk building stand-alone, consent-based, data sharing flows which are in accordance with national legislation.
- The data for open finance are already available over APIs.
The data required for the consumer-centric, open finance use cases are already visible to the end user in different digital interfaces (mypages and apps, among others). Those digital interfaces are maintained as a part of efficient operations and digital customer services. These websites and apps are already powered by data served on an API architecture; this means that the data is already available, a technical template already exists on how to design and access the data, and the API infrastructure already exists to serve this type of data via real-time requests. Overall, this will significantly lower the cost for data providers to make data available on an open finance API. In light of this, the argument that significant costs would be required to develop and operate these APIs is a bit moot.
- All parties involved in open finance require some investment of funds to build and operate the necessary infrastructure.
It is naive to think that in a data-sharing ecosystem, the Data Provider is the only one who requires investment and incurs operating costs. Data Providers (insurance companies, banks), Data Facilitators (third party providers - TPPs), and Data Receivers are ALL required to develop and operate the infrastructure needed to build a working open finance ecosystem. Data Facilitators are the middle-man who has to build an API infrastructure, develop techniques and methods to standardize data, and build solutions that make it as simple as possible to receive data in order to provide use cases to consumers. Data Receivers (banks, insurance companies, fintechs) are also required to invest in setting up a ‘receiving’ API and to build the infrastructure that provides the new digital service to the consumer. Out of the three types of players, it can be argued that the Data Provider requires the LEAST investment and operational cost. Especially when considering the fact that a lot of the data is already available on APIs for their websites and apps.
- A free market based approach will converge on the optimal price of open finance services.
A cost model for open finance will have a significant impact on its success. While a centrally designed cost model for such services sounds promising for Data Providers (since they can easily recover invested costs), the risks are very high that such a model will prevent a regulation from reaching its core goals of empowering the consumer to make better financial decisions, increasing innovation, and increasing competition. Data Providers potentially see this outcome and, therefore, see the argument for cost recovery as a way to maintain their incumbent position in a sector with low customer satisfaction and a late adoption of digitally powered, consumer-centric services. Rather than choosing an approach that will seal the fate of a legislation before it is even enforced, take a free market approach and let the actors decide the best pricing strategy. This will allow for greater innovation and far more agile responses to consumer demands and market needs. In the end, the consumer should freely access their data, and those providing such services should identify an optimal pricing strategy for each individual use case.
These considerations are a reflection of recent discussions we had with key stakeholders, and were paramount in the early stages of open finance development.
We will continue to engage proactively to ensure that all relevant voices are heard in the exciting discussion of the upcoming framework for open finance – one that would both empower the consumers and pave the way for innovation.