Panel
Open Data, Open Banking: Creating a More Competitive Financial Services Ecosystem
Milken InstituteMelissa Koide, Gilles Gade, Sima Gandhi, Sahil Kini, Craig Schachter, Rachel Bronson, Aaron Pakles, Lee Hutter
- Personalized benefits are anticipated from access to personal financial and health data, driving consumer availability of such information, particularly in the UK, Europe, Australia, and Canada where consumers will increasingly permission data flow to technology-enhanced products.
- User adoption and conversion rates are predicted to increase by a few percentage points upon the introduction of standard consent flows, with consent established as the primary arbiter for data permissioning.
- A shift in bank core operations is expected from batch processing to real-time API-based systems, driven by "Bank as a Service" models and the inability of 85% of US banks with assets under $500 million to fund independent technology ventures without relying on core processors like FIS, Jack Henry, and Fiserv.
- Without policy mandates to force change, the community banking environment risks missing opportunities or losing consumers to other providers, as the majority of banks remain beholden to older technology and have not adequately prepared for the open banking shift.
- Small banks and credit unions face significant challenges due to limited resources and must partner to survive against the scale of large banks, while smaller institutions increasingly recognize the threat of losing users if they cannot integrate with fintech platforms like Acorns.
- India is characterized by a GDP per capita of $2,000, 600 million people living on less than $3,000 annually, a household debt-to-GDP ratio of 12% compared to 113% in the US, and low insurance penetration at 3.9% versus a global average of 6.5%.
- The Indian market shows a mutual fund access rate of only 2%, with one in every two new bank accounts opened worldwide in the last four years being in India due to the Aadhaar system, yet transaction clearing times remain three days in 2019, placing the country decades behind the US in this metric.
- Regulatory approaches vary globally, with India acting as a global leader studying GDPR and PSD2 before formulating policy, while the US utilizes a fragmented system of 12 federal and 50 state regulators that hinders ubiquitous payment solutions compared to the APAC region, where Singapore leads in readiness.
- The UK is currently a slow follower in open banking readiness despite being expected to catch up soon, while Brazil's deposit base is highly concentrated with 90% split across four banks, creating a cartelized environment that eliminates competition on fees and rates.
- Open banking benefits remain difficult to manifest until the industry clarifies responsibility and liability regarding data flow, requiring further clarification of consumer rights to own and share data under Section 1033.
- US regulation is predicted to continue leading by principles rather than specific technology standards to allow markets to develop solutions before regulators articulate consumer empowerment frameworks, while the UK is viewed as slightly behind the US in current readiness.
- Future policy options for data flow in the cash flow context for underwriting will be detailed in an upcoming paper, with the expectation that regulations must be maintained as long as they protect the end consumer.