As fintech companies expand access to online financial services and innovative offerings, their activities are generating an increasingly rich stream of data about Americans’ financial lives.
Our data identify us and define us to the many services we opt into, from bill pay and direct deposit to newer tools such as Mint, RocketMortgage and Coinbase. The fate and future of this data — who creates it, who owns it, how it’s shared, and who controls our access to it — should trouble us. Though not financially related, a timely example is the revelations of how data from 50 million Facebook FB, -2.66% users was questionably obtained and used in the Cambridge Analytica scandal.
The third-party services you authorize to share financial data currently depend on banks’ compliance. If your bank doesn’t allow you to port your data into the new ecosystem you want to use, it can block your access to that data and, effectively, to your money.
Many customers don’t realize they’re depending on the good will of banks to access their own data until permission is denied. Banks justify limiting your access by claiming the financial data you generate is part of their records, not yours.
Imagine a doctor arguing that because he’d made the notes in your chart, your medical records weren’t really “yours” and couldn’t be transferred to another practice — or would only be sold to a new practice for a steep fee.
As recently as 2000, mobile carriers didn’t permit users to take a phone number with them to a competing service. Users effectively had to choose between keeping unsatisfactory service or surrendering the social capital attached to their cell phone numbers: bank account, online logins, credit cards, DMV record, and the family address book.
As the value of information associated with phone numbers grew, Americans demanded to take ownership of the numerical key to their social identities. The FCC eventually acquiesced by requiring phone carriers to offer number portability.
Just as your cell number doesn’t belong to any particular cell provider, the network of reputations associated with your financial activities shouldn’t belong to the bank that issued the account number. Consumers must demand the same protection and portability from banks as they have from doctors and phone companies.
Using fintech services to buy a house, access a loan, apply for a credit card, or seek investment advice requires access to permissioned data. Innovative services often struggle to gain access to valuable data generated by users, because currently big banks control access.
As online disruptors compete with the core functions of banks (small-business lending, investment advice, mortgages) institutional incentives to cooperate with third-party services disappear, and banks are likely to unfairly limit or manipulate access to user data to protect profit margins. Continued innovation and authentic competition require greater end-user control over data.
A galaxy of data points, including the billions of payments made through Venmo, PayPal , WePay, or Square, reveal our reputations more effectively than a credit report. The unprecedented risk exposed by Equifax’s EFX, -2.84% data breach should remind us that credit scores are not sufficient indicators of credit worthiness.
The millions of American small businesses and households that are underserved by traditional banks are an untapped reservoir of productivity and prosperity. Business owners benefit from near-instant lending decisions and underwriting based on real-time performance. Instant access to financial data empowers individuals and small businesses alike to make timely decisions, and to comparison-shop for rates or terms.
Giving users more rights over permissioned data is an important step for the banking industry’s modernization and stability. Legislation aimed at protecting end-user access to financial data coupled with better security standards has been promulgated by the Consumer Financial Protection Bureau and proposed in Congress: The MAIN STREET Cybersecurity Act in the Senate, and The Financial Transparency Act in the House. Discussion of a national uniform standard for handling data breaches and other federal cybersecurity standards offer promising progress.
You own the funds in your account, even when they’re held by a bank. The bank is the steward of those funds, at your direction. You should likewise own the data generated by your use of those funds.
Granting or denying permission to your compiled financial data must become an easy and transparent process. Liberating data ensures easy, simple, nondiscriminatory access to banking services for everyone. Portability preserves competition by allowing customers to vote with their feet, and ensures equal access to innovative, emerging services.
It’s your data. Demand access. Defend portability.
Kathryn Petralia is co-founder and president of small-business lender Kabbage, Inc.