💾 Archived View for gmi.noulin.net › mobileNews › 5648.gmi captured on 2023-06-16 at 17:58:48. Gemini links have been rewritten to link to archived content
⬅️ Previous capture (2023-01-29)
-=-=-=-=-=-=-
2015-10-27 04:48:42
The grip banks have over their customers is weakening
Oct 24th 2015
A FEW dollars spent at Starbucks, a monthly mortgage payment, a Netflix fee,
Starbucks again: bank-account statements are not exactly exciting stuff. But
there is gold hidden in this by-product of our financial lives, or so many
budding technology firms believe. A host of startups crave access to the data
and are pitching services, from budgeting apps to cheaper loans, to those who
open their books to them. Yet banks worry that co-operating is the first step
towards losing the lucrative grip they have on their customers.
Squeezing insights out of a bank statement is hardly at the cutting edge of big
data. Years of salary payments confirm stable employment; bounced cheques hint
at carelessness; regular green fees suggest an interest in golf. Banks
implicitly use balance and income information when making loan decisions. That
has typically given them a leg up over such rivals as consumer-lending
companies, which have to base offers of credit on less detailed information.
Add the fact that switching bank accounts is seen as a chore, and incumbents
are in effect shielded from competition. But three things have changed in
recent years. The first is the plethora of fintech competitors trying to take
on banks. The second is internet banking, which has given nearly everyone
access to reams of their own financial information in handy digital form. The
third is regulation, which is swinging in favour of the upstarts by forcing
banks to share the data generated by all those trips to the coffee shop.
Data are already seeping out of banks digital vaults and, in the process,
giving a sense of why such leaks are damaging. A slew of firms, such as Mint in
America, offer to aggregate the data from customers various bank accounts,
credit-card statements and retirement-savings plans in a single place. This
gives customers a comprehensive view of their finances. Because these firms
have a startup s focus on being easy and appealing to use, their apps make most
banks mobile offerings look clunky.
Worse, banks efforts to sell multiple products to current-account holders are
being undercut by the financial aggregators, which pitch financial products to
customers using the data they have accumulated. If we see you are paying 4% on
your mortgage and there is a product in the market that would let you pay 2%,
we think you will want to know about it, says Joan Burkovic of Bankin , a
French aggregator. Your bank would rather you didn t.
Among the keenest potential users of personal bank data are peer-to-peer
lenders, platforms that match those wanting to borrow money with those wanting
to lend it. The likes of Zopa in Britain and Lending Club in America boast
about their algorithms ability to sift good credit risks from bad ones. But
the computer programs are only as good as the data fed into them. Information
from credit bureaus is useful but limited. Bank-account information is
probably the most valuable data source for underwriting credit that isn t in
widespread use, says Martin Kissinger from Lendable, a peer-to-peer firm.
Not only the balance and cashflow are interesting; individual transactions can
be revealing, too. How much a small business pays in taxes, say, can give
insight into its profitability months before it files its accounts, says Anil
Stocker of MarketInvoice, a lending platform. Payments to and from directors,
or refunds to customers, can also help gauge its financial health.
Banks are understandably hesitant to send their customers information to
potential competitors, even with the customer s consent. In America banks have
long allowed customers to download their data to compile tax returns; that
capability is now being jerry-rigged to feed into other services (Mint belongs
to Intuit, a purveyor of tax software). Regulators compel British banks to
allow customers to download data in a standard-format spreadsheet.
If banks are not willing or obliged to share, there are services that will
retrieve current-account data without the bank s approval. These startups ask
customers to share their online banking passwords, in order to log into their
accounts and copy and paste page upon page of online statements. Such scraping
happens in a legal grey area. Banks moan about their terms of service being
breached. British regulators frown upon it, for security reasons, making life
difficult for would-be Mints; American regulators are said to be unhappy as
well. Services such as Yodlee, a Californian outfit, offer to scrape or
download bank records, whichever is least inconvenient.
Online lending platforms are wary of scraping: customers are understandably
reluctant to hand over their passwords. Only people turned away for credit
elsewhere (often for a reason) are likely to do so. Instead, aggregators often
make do with data which are patchy or delayed. The likes of Zopa and Lending
Club, for example, merely ask for smartphone snapshots of bank statements a
retrograde step, by fintech s standards, and one that limits the insights they
can gather.
Policymakers in Europe have concluded that forcing banks to share data at
consumers request will yield big benefits for the banking public. Earlier this
month the European Union adopted a directive on payment services, which will in
effect force banks to impart data to third parties in a convenient format.
Customers will also be able to authorise fintech firms to make payments from
their bank accounts.
Banks say publicly they are open to the idea of more competition. Some are
starting to release data more readily. But many fear they are fighting fintech
with one hand tied behind their backs. Startups operate with the privacy mores
of the technology sector; consumers opt in to their products, and so expect to
be bombarded with ads. Banks are more like utilities, trusted to safeguard
information rather than use it. When ING, a Dutch bank, last year mulled
offering advertisers the opportunity to pitch to its customers based on their
spending data, an outcry forced a quick reversal.
Having seen consumers desert their branches, banks now worry that customers
will desert their apps and websites, too. Bosses glimpse a future where
customers use banks merely as a utility, depositing their money there but using
unregulated startups to manage it. Smoother data-sharing would make that a
reality. It is a prospect that should indeed frighten bankers as much as it
delights their customers.