The Consumer Duty is an Open Data opportunity
In July, the FCA will finalise its new Consumer Duty, which contains a set of rules intended to “fundamentally shift the mindset” of financial services firms. The Duty sets out a higher standard of consumer protection and requires financial markets to deliver good outcomes to retail customers.
The new Consumer Duty is not just an opportunity to shift the mindset of the financial services industry but a chance to drive further adoption of game-changing Open Finance and Open Data technologies. In fact, it is difficult to see how a firm can comply with Consumer Duty at scale without embracing Open Finance.
Firms that offer Open Finance options to consumers will be able to deliver a holistic, well-informed and monitored service. They will also gain access to the means to demonstrate their adherence to the Duty, unlocking a compliance dividend and driving lower costs.
The new rules demonstrate that the adoption of Open Finance should be a key priority for regulated, customer-facing firms. The Consumer Duty may cause disruption in the short term as companies rush to ensure compliance. But in the long term, it could stand as a milestone in the development of Open Finance and Open Data.
Understanding The Consumer Duty
The Consumer Duty is built around The Consumer Principle, which states that firms must act to “deliver good outcomes for retail customers”. It contains three cross-cutting rules which require companies to “act in good faith” and “avoid foreseeable harm” to retail customers, as well as enabling and supporting retail customers to pursue financial objectives. It also sets out outcomes in four areas:
- Products and services
- Price and value
- Consumer understanding
- Consumer support
The Duty contains proposals that will improve consumers’ ability to compare prices, giving Account Information Service Providers (AISPs) an important new role in enabling price comparisons and assessments of the value delivered by providers. They will also be able to give consumers and advisers the opportunity to see all their financial affairs presented in a single view.
The Benefits of Open Finance
Open Finance and Open Data enable better outcomes for consumers and businesses, as well as financial services providers. When a consumer gives consent to share their data, they gain access to financial services which are built around their needs and context.
Data-sharing can power both initial and ongoing real-time suitability checks including changes in capacity for loss and other customer vulnerability factors. It allows providers to build hyper-personalised experiences that support customer retention and communication. Open Finance powers lower cost frictionless payment mechanisms including automated sweeping to pensions, loan payments or savings and investment products.
As well as benefits to businesses and existing customers, Open Finance will drive financial inclusion through the leveraging of alternative credit data such as rent recognition to enable access to mortgages and lending services. Financial firms will also benefit from improved decision-making through access to a holistic picture of consumers’ finances as well as a method of identifying the early warning signs of financial issues.
The availability of data also brings many benefits to providers, including lower customer acquisition costs through data analytics and reduced lower onboarding expenses due to automated, comprehensive fact finds. Providers will gain access to data-based suitability and capacity for loss checks, as well as the ability to perform ongoing checks for changes in circumstances and monitor progression towards intended financial outcomes. This isn’t just another compliance headache because there are genuine opportunities for providers.
Next Steps for Open Finance
Access to consumer consent-driven data has improved significantly in recent years. However, learnings from Open Banking show that large incumbent providers must be compelled to make data-sharing easier and more secure through the implementation of open APIs. When customers understand the benefits of sharing data and can easily consent to allow this information to be accessed, they will be able to improve their financial outcomes.
Moneyhub is passionate about enabling consumers to obtain insights from their own data and behavioural traits which can be used to improve their financial outcomes. We already submitted a response to the FCA’s consultation pointing to Open Finance as an effective tool in achieving better financial outcomes for consumers and highlighting how it can enable retail financial firms to comply with the new rules. We also argued that FCA’s consultation on Consumer Duty demonstrates the need for greater access to data to improve consumer outcomes.
Consumer Duty could go further by leveraging the existing GDPR requirement for financial institutions to make customer data readily available through the adoption of Open Data standards. Providers across sectors including general insurance, life and pensions or wealth management can now offer secure and easy access to customer records. If they also shared product and pricing data via API, the information could be distributed by data aggregators and customers would be further empowered by having a better way to analyse value and consider their options.
Open Finance will create better-informed consumers whilst simultaneously offering financial businesses innovative ways of developing better and hyper-relevant products while complying with the Consumer Duty. As the July deadline approaches, we must see the change that is coming as an opportunity for further growth and adoption.
[The author of this article, Vaughan Jenkins, is Director of Business Development at Moneyhub Enterprises]
You would also be interested to hear what other experts have to say on Open Banking related security issues:
- Fighting back against fraud with the help of Open Banking and verified mandates | Written byarticle, Siamac Rezaiezadeh, Director of Product Marketing at GoCardless.
- eID and the EU Digital Identity Framework: A Scandinavian Perspective | Written by Erik Vasaasen, Chief Technology Officer at Okay.
- 2022 Trends: Security and Payments – More of the same? | Written by Erik Vasaasen, Chief Technology Officer at Okay.
- PSD2 Spotlight: Agents and the Risks they Pose | Written by Mike Woods, CEO and Co-Founder at Konsentus.
To learn more about ‘Digital Identity in the World of Open Banking‘ and the enforcement of SCA in the UK, you can watch our 17th March 2022 Campfire below.