In the wake of the Financial Conduct Authority’s (FCA) proposal to replace its 90-day reauthentication requirement with a 90-day re-consent requirement, Open Banking, together with increased consumer control regarding data rights and usage, is set to be unlocked by improved data democracy.
This is exactly the angle being discussed here by our guest Kat Cloud, the UK Policy Lead for the Open Banking platform Plaid. Her work focuses on protecting and enabling consumer’s rights to access and use their financial data. Before joining Plaid, Kat was the policy lead for Open Banking and PSD2 at the Financial Conduct Authority. A self-confessed payment-nerd, she has played key roles in delivering Open Banking, PSD2, and now open finance for the UK.
If Open Banking is going to truly revolutionise the financial services industry, then data democracy is the key to lowering the remaining barriers to progress and improving the consumer experience. How consumers access, manage and crucially, control their data has been the focus of the Open Banking debate for years. But across industry, regulators, and Government, progress has been too slow to truly realise the benefits of digitisation and meet the next generation of consumer financial needs.
So what needs to change?
In the UK, Open Banking Standards have been developed to ensure consumers go through a simple and consistent journey when sharing their data. However, the current framework is not enough to truly give consumers control over their financial lives. Obstacles to how consumers approve the use of their data need to be removed in order to smooth the path to true digital integration, and the best consumer outcomes.
Keeping Pace With Fragmented Financial Services
Over the past year, there have been a series of reviews, recommendations, and consultations focused on how the sector and its regulatory environment must evolve with changing consumer habits. The latest milestone in this journey is the Financial Conduct Authority’s (FCA) proposal to remove the 90-day re-authentication requirement and replace it with 90-day re-consent.
In its current form, authorisation and authentication are conflated in a way that interferes with the policy objectives and development of Open Banking. Reauthorisation takes place between the consumer and a third-party provider, while reauthentication happens between the financial institution and the third-party provider. This leads to unnecessary friction for both consumers and industry, inhibiting the adoption of processes which would improve data sharing.
The FCA’s proposed reform to this process will see third-party providers (TPPs), like Plaid, made responsible for consumer data sharing, removing the need for a cumbersome process between the consumer, the TPP, and the bank.
If there is a first step to unlocking the data blockage in open banking and open finance, empowering yet protecting consumers, this is it. But it’s the first step, and we must challenge ourselves to go much further.
Current regulations are based on the assumption that consumers have one bank account connected to a third-party provider – the reality is that most people have many more. In 2019, people had an average 5.3 bank accounts spread across different providers; according to Mercator Research in 2019. This means that even the above reform will have a limited impact on those who want to use a central TPP to access and control all of the account data. Without change, consumers will be unable to reauthenticate all of their products in one smooth journey and the true benefits of Open Banking will continue to escape us.
Democratising Data and the Consumer Journey
Our vision for the future is simple: consumers should be at the centre of the ecosystem, free to take their data with them to any provider that meets their needs.
With consumers constantly expanding their use of financial products and platforms, the solution is to take a network approach where consumers manage their consents across the ecosystem in one place.
The benefits of improving the consumer journey and reducing friction when accessing data are clear; emerging network aggregator platforms will enable TPPs and consumers themselves to build a great understanding of their habits giving them access to a whole suite of financial products and services built around their own, individual financial data.
The solution to this is taking a network approach, where consumers manage their consents across the ecosystem in one place. Cue Plaid’s two models; Plaid Link and Plaid Portal both allow consumers to re-consent with Plaid, but Plaid Portal goes further by providing a dashboard that shows all the bank accounts and TPPs the consumer has shared their data with.
Both models would meet regulatory requirements, however, one supports direct linear relationships while the other supports indirect network relationships. Both would provide an open door to digital democracy, allowing consumers to easily manage their data across different platforms and services.
If a re-consent model which allowed TPPs to act as aggregators across multiple accounts was made possible, products like Plaid Link and Plaid Portal would empower consumers to manage their consents from one central platform, giving them greater control over who accesses their data and, crucially, democratising how data is used by providers. Gone will be the days of laboriously authorising individual providers. Increased access to consumer data will create greater competition in the sector, drive product innovation, improve functionality and, ultimately, benefit the end consumer.
What is needed from the FCA now is guidance which would allow for each model to be used in the right circumstances and give room for network platforms to act as aggregators across multiple consumer accounts. Changes to how consumers connect and manage their accounts via a third party will have an impact in every area of their financial life, making traditionally disconnected and confusing accounts easily accessible and levelling the playing field for fintech solutions which can help consumers seize control of their finances.
The key to realising this future? More control over their data.