Open banking initiatives have proven the value of data sharing, opening up opportunities for innovation in the world of finance. Both Europe and the UK introduced legislation to force the major banks to make their API, a kind of back door to a data set, more widely available to 3rd party developers, meaning that smaller players in the market were able to offer financial services, such as transactions. In the UK, a safe and working data sharing eco-system is up and running.
Non-regulatory approaches to banking innovation
Other countries, such as South Korean, Singapore and Japan have opted to allow market forces to drive the changes. By promoting the benefits of adopting data sharing frameworks, it is hoped that communication between banks and Fintechs will be facilitated without a heavy handed approach.
An API works by making some data available to 3rd party users. In the case of banking, this is essential to allow transactions to pass between organisations offering financial services. In the future we could see a range of non-banking companies offering banking services. For example, supermarkets could offer micro loans to purchase their products, or other retail companies could offer insurance services without going through a 3rd party provider.
The US Approach
In the US, there has been little appetite for a legislative approach, despite the recommendation that government-driven models be developed. Banking is largely organised at state level, and there is little appetite for further regulation of the already complex finance industry. They are taking a contractual approach, in the hope that offering 3rd parties access to some data will generate the same opportunities as a legislative approach.
There seems to be broad agreement that cross-industry data sharing is a way forward to allow innovation in the finance sector. It requires considerable effort and commitment to make sure that a safe eco-system is in place. At a wider level, it marks the beginnings of a new approach to data, where the customer is given more control over their own data, which we might see extended to other aspects of life.