Everything you do online and in real life is being turned into one thing: data. For industries that are collecting personal and valuable data (think: healthcare, banking, education), there are entire buildings of people in Washington, D.C., thinking about how best to protect you from that data being used to harm you.
Typically, when we think about preventing misuse of data, we think about locking the data away to protect it— which is important! A Pew Research study in 2019 found 81% of U.S. adults believe the risks of companies collecting information about them outweigh the benefits. This means that when we know that data is especially valuable, there’s another side of that equation: how do we make sure that you get the value of your personal data? It’s counterintuitive, but regulators have been hard at work thinking about how to make sure you can access your data and share it when it makes sense for you.
In healthcare, these regulations require what they call “interoperability.” Healthcare providers and payers that collect mountains of data on their patients and insureds. Regulators are requiring those companies to implement technology that can send and receive information between health providers and share with the patient directly. These regulations focus on APIs as a gateway to that information and as a way for patients to easily give access to the data they want to share, when they want to share it. This has led to massive adoption of patient-centered apps by healthcare providers, and a wealth of data for app developers who are innovating to help patients take charge of their healthcare.
Open Banking Explained
Finance regulations are catching up. In Europe, against the backdrop of the GDPR, the concept of Open Banking has emerged in regulations. Open Banking might sound like a free-for-all, but the term actually describes an incredibly complex web of data that needs to be turned into actionable information, while also maintaining security and privacy. The basic premise of open banking in finance is a lot like what we’ve seen in healthcare for the past decade: people are generating mountains of data that is valuable to them, but that data is being locked away by their banks (sometimes in physical filing cabinets!) where they can’t use it in the way they’d like. Open Banking requires banks to make customers’ information available through APIs so the customer can grant access to that information to other companies and banks they use.
We’re seeing a similar movement in the U.S., but the pressure is coming from market forces and consumer expectations rather than regulators.
Consumers Find Value in Their Data
Consumers are more aware than ever of the possibilities and the value their data can unlock. As fintechs, Dwolla and our clients are figuring out how we can deliver on the promise of that data.
The technical brains at Dwolla are hard at work figuring out how we can revolutionize the experience of making and understanding payments by delivering the right pieces of data to the right people at the right time, and turning it into usable information. At the same time, those of us who work in legal, compliance and privacy are grappling with how we enable those possibilities while fulfilling our promises and obligations to the users generating all that data.
For privacy professionals, the idea of opening data you’re entrusted with to others can be daunting—it feels safer if it’s under lock and key. But in fintech, just like in healthcare, there are huge benefits for privacy, consumer choice and innovation in being able to share certain data at the right time.
There are a few things to consider as we wrap our heads around open banking.
- We can use data for good. The use of data gets a bad rap these days, mostly coming from companies using data for purposes that weren’t ever expected by the people generating that data (think: Facebook’s Cambridge Analytica scandal). When we take data already in the fintech ecosystem and use it to deliver a positive experience where the user understands the use and sees the benefits, everyone wins. Consider, for example, the perpetual problem of user validation and “know your customer” requirements. In a typical fintech app, to complete a standard payment, the user enters significant personal data (name, birthdate, sometimes a Social Security Number, email address). When done right, data sharing could actually protect that user’s privacy. If the user could authorize their bank to share the information via a secure Open Banking API, the user could authorize several applications without having to enter information into each one. A fintech could use this data to validate individuals and tokenize their access to multiple partner services, meaning their personal data never has to leave the original bank.
- More isn’t always better. Fintechs, banks and others that touch the financial services industry have a ton of data at their disposal on all of their customers, especially if they deliver those services online. It’s easy to focus on accumulating as much data as you can without thinking through how that data will be used or who will use it. This is not just an expensive approach to data, it’s risky. Every piece of information we collect is a new increment of risk. If we don’t have a use for that information, it’s an unnecessary risk. Each business needs to assess the data we have and how it can be most useful to our customers. We also need to understand and be honest with ourselves about what data we don’t need. Our goal should be to retain only the information we need for delivering the service, complying with regulatory requirements and innovating to make our service as useful as possible to customers.
- Transparency is your best bet. When it comes to user data, we have to remember that we are stewards of data belonging to our users. This framework helps us think in ways that prioritize transparency and consumer control. As we enter a new era of Open Banking, we need to build trust to set a foundation for massive change. Companies need to find ways to reassure their customers they are using data responsibly, and to help their customers see the benefits of that data use. A great first step is transparency about how we are using data, but we know that customers are skeptical about the value of sharing their data. Giving customers the ability to direct how we share and use that data can help them see immediate, tangible benefits of their data being shared through the fintech ecosystem, rather than locked away by their bank.
Tell Your Story Using Data
Fintechs have an unprecedented opportunity to show consumers the value they can deliver using the data they generate every day—and we are making that case now.
If the trend in the U.S. continues toward a standard that truly fulfills the promise of Open Banking, there’s a lot of responsibility that comes with that opportunity. At Dwolla, we’re preparing to meet that challenge with world-class technology and a group of innovative team members.
Interested in joining us? We’re hiring.