Not only banks: also Big Tech should open up its data

The entry into force of PSD2, the new European directive on payments, gave further consideration to the importance of data in the financial world. PSD2 requires financial institutions to share customer data relating to payments and current accounts with third parties, with the prior consent of the client. This directive therefore allows different players, including those external to the traditional financial world such as start-ups, Big Tech, utilities, car manufacturers, large-scale retailers, etc., to access and utilise such information to customise and create new financial and non-financial products. This will significantly change the supply chain configuration of the financial services and the competitive arena, reducing the gap between financial and non-strictly financial markets. The analysis of the Fintech & Insurtech Observatory has already identified 48 Open Banking and Open Finance platforms established within the 28 EU countries (17 in the UK alone) and more than 12 non-financial sectors with companies offering financial services.

So why are players “external” to the financial world not in turn obliged to provide financial services with relevant information? Companies like Facebook, Amazon, LinkedIn, Apple and Booking have access to a ‘goldmine’ of data, providing real-time information about users. Such data could be beneficial to financial institutions, helping them create and improve their own financial services. Just think about the information on the preferences and daily habits of the consumers owned by the eCommerce giants and the Instant Messaging apps, utilising this data would allow much more accurate customization of investment offers. Or consider data available to LinkedIn on the current and past working experience of its members, useful in the process of granting loans. Specifically for credit, this kind of real-time data could allow much cheaper and more precise evaluations of both the ex-ante creditworthiness and the ex post behaviour of the client, compared to those available to a bank.

So far, the public intervention on Big Tech companies has focused on the limitation on the use of data by these players. A recent example being last year’s judgment of the German Competition Authority to prevent Facebook from systematically combining the users’ data coming from different platforms. These actions are clearly important to guarantee the privacy of users, but when banks are confronted with the burden to share customer data with third-party players there is a clear lack of a similar obligation for the Big Tech companies to share data of financial importance with the financial players.

As noted by the Financial Stability Board in the recent report Bigtech in Finance, this asymmetry can bring an excessive competitive advantage to the Big Tech companies and cause serious difficulties for the incumbents of the financial sector, with obvious consequences on the system competition. An obligation to share financial data for the Big Tech companies would instead guarantee the necessary reciprocity between the two worlds, and provide greater opportunities for cooperation or virtuous competition, whilst yielding advantages for the consumer.

Such a relevant issue, receiving attention by an increasingly wide audience of traditional players, may prompt a quick response from the European legislator. The initial statements by the new European Commission, and notably by Margrethe Vestager who was recently confirmed as Commissioner for Competition and for the new portfolio ‘Europe fit for the Digital Age’, seem to go in this direction. All this indicating 2020 may be a crucial year.