In Europe and elsewhere were are in the era of open banking. Third parties can have access to bank customer data — with customer consent, obviously — and there’s nothing that banks do about it. Who will benefit from this? Fintech, as was originally intended, or techfin, as seems likely?After all, requiring Big Banks to open up their customer data to Big Tech seems to create something of an asymmetric completive environment. In fact, a recent report from BBVA calls the development of a suitable regulatory response to this “one of the greatest public policy challenges”. They call on regulators to address the “imbalance on data access” between financial institutions and the S&P5 (Google, Amazon, Microsoft, Apple and Facebook). I wrote back in 2016 that the major beneficiaries of the regulators pressure to open up the banks will be the internet giants who already have the customer relationships.
Of course, when I said it, no-one listened. But when the woman at the top of Europe’s second biggest bank weighed in, people began to sit up and pay attention: Ana Botín, executive chairman of Santander, told the Financial Times that the EU’s Second Payments Services Directive “needs to be reviewed for the digital age. The theory is good but it needs to be fair — at the moment it’s not symmetrical” and Ms. Botin, BBVA and I are not the only ones who think this asymmetry may not deliver the best outcomes.
A recent paper from the European banking industry, produced by the European Banking Federation (EBF), European Association of Co-operative Banks (EACB) and the European Savings and Retail Banking Group (ESBG) sets out the industry’s vision for the EU payments market in detail. There’s lots of interesting stuff in there, but I was particularly interested in their views on the regulatory issue that BBVA raise. Hence I couldn’t help but notice their comment on page six that “from a data privacy perspective, global BigTech’s existing data superiority combined with access to payments data should be concerning and could lead to unintended negative outcomes for EU citizens”. Indeed, and this is hardly a new revelation: It’s been obvious to any observer of the European payments landscape that it has been tilted. The competition to incumbent financial services providers will not be fintechs.
(Note that this is not just about payments. BCG say that BigTech is coming to the wealth management sector as well and will pose “a serious threat” to incumbents by offering bespoke new services to investors.)
Deutsche Bank Research published a report that went into detail about the dynamics of this emerging fintech and techfin battle. They say unequivocally that “competition will hence be distorted”. Their point is that banks will be subject to open banking regulation put into place by well-meaning regulators who want more competition in retail financial services, obliging them to provide customer data to all licensed competitors. BigTechs, on the other hand, have to observe the GDPR only and will de facto retain economic sovereignty over the personal data of their customers.
In short, regulators may well be creating the conditions to replace an uncompetitive oligarchy (as they see it) of banks with an uncontrollable oligarchy of internet giants. An Accenture report on the topic from last year noted (accurately, in my opinion) that “trusted social media companies (Facebook, Twitter, LinkedIn) and tech companies (Google, Apple) will capture a significant slice of the [access to accounts] market”.
What to do? Well, in her FT piece, Ms. Botin suggested that organisations holding the accounts of more than (for example) 50,000 people ought to be subject to some regulation to give API access to the consumer data and it seems to me that this might kill two birds with one stone: it would make it easier for competitors to the internet giants to emerge and might lead to a creative rebalancing of the relationship between the financial sector and the internet sector. This points us towards a sound, global regulatory response to the need to create a level playing field: let us put in place a set of reciprocal rights and responsibilities. My old friend Simon Lelieveldt, who I always listen to on these matters, also suggests this as the way forward. He says that if the European Commission wants a “balanced” market with effective competition then it should “redress the design errors in the PSD-2 and allow banks to ask fees and allow them reciprocal access to the customer data”.
Having discussed this idea with a few people, I’ve begun to think that is a more important, and far more wide-ranging, approach to competition in the new economy than I had originally thought. This thinking goes back to when I had the honour of chairing Scott Galloway, author of “The Four” (a book about the power of Google, Apple, Facebook and Amazon), at the KnowID conference in Washington. Scott is Scott makes a convincing case for government regulation of these global businesses. Just as the government had to step in with anti-trust acts of the early 20th century in recognition of the fascist nature of monopoly capitalism, so Scott argues that they will have to step in a century on and, again, not to subvert capitalism but to save it. His argument centres on the breaking up of the internet giants, but I wonder if the issue of APIs might provide an alternative and eminently practical way forward?
With Scott Galloway at KnowID
In the new economy, where data is the new oil and personal data is the new toxic waste, access to data is the resource that falls prey to monopoly. It is hard for a competitor social network to compete with Facebook because Facebook already has all my pictures. Sure, I can export my Facebook data and then set about re-uploading it somewhere else, but that’s a pretty significant barrier to competition, even though it’s my data.
So, yes, Open Banking. But open everything else as well. Particularly Open Bigtech. This sharing approach creates more of a level playing field by making it possible for banks to access the customers’ social graphs but it would also encourage alternatives to services such as Instagram and Facebook to emerge. If I decide I like another chat service better than WhatApp but all of my friends are on WhatsApp, it will never get off the ground. On the other hand, if I can give it access to my WhatsApp contacts and messages then WhatsApp will have real competition.This is approach would not stop Facebook and Google and the other from storing my data but it would stop them from hoarding it to the exclusion of competitors.
Forcing organisations to make this data accessible via API would be an excellent way to obtain the level playing field that the European banks are calling for. This would kill two birds with one stone, as we say in English: it would make it easier for competitors to the internet giants to emerge and might lead to a creative rebalancing of the relationship between the financial sector and the internet sector. So, if the United States, the European Union and others wants to begin thinking about a global “PSD3″, in my opinion it writes itself.
Snippings 