Opening Doors to Improved Financial Services by Using Consumer Data Responsibly

Using consumer data to develop financial offerings and introduce new services can benefit both consumers and the financial institutions that serve them. As open banking initiatives become more prevalent, financial markets will increasingly rely on secure, consent-based access to a wider array of consumer data. Simon Brightman, Head of Data Strategy & Solutions at TransUnion Canada, gives us an overview of what this environment could look like.

Consumer data: a transfer of ownership

High-profile data breaches have put the spotlight on data security, and consumers are looking for certain assurances when it comes to protecting their financial information. With the move towards open banking, we may see an increased focus on controls regarding who may use data and what it may be used for.

In the potential environment of open banking, consumers — not their financial institutions — will decide who they share their data with. Some open banking models are being developed where the third parties consumers give consent to will be able to access information that was previously held almost exclusively by banks. This data could then be used by that third party only as needed, and as permitted by the consumer.

Transparency and consent for responsible data use

Transparency and consent would be the foundation of this approach: before a consumer opts to share any kind of data with a third party, they’ll want to know how this will benefit them. Organizations seeking to use this data would therefore need to be very clear about what data they will use, for how long, and for what purpose — for example, assessing risk on a transaction or making a decision to extend credit. Such a system would also need to make it just as easy for consumers to withdraw their consent to share information as it was to give that consent.

Extending financial services with expanded data sets

Access to a wider range of data sets and sources combined with algorithms will give banks, insurers, FinTechs and other industry players a more fulsome view of individual consumer financial activity. This could allow them to better anticipate consumer needs and offer services tailored to a consumer’s profile.

Let’s illustrate this with a hypothetical example: Mike has been in Canada for a year and has very limited credit history. He wants to buy a car but his traditional credit score places him in a sub-prime category, so his financing rate is high. With access to traditional credit data as well as alternative data from a wider range of sources, lenders (not just the bank he uses for his daily transactions) could gain further insight into Mike’s credit risk through a deeper understanding of his financial behaviour.

Benefits to consumers

There is potential for this kind of data sharing to have a positive impact on consumers. Benefits include:

• Greater security across a wide range of financial transactions, regardless of size, which could mean less risk of identity and credit fraud
• Faster applications and approvals, with fewer manual steps (like answering long questionnaires, or digging out old bank statements to include in an application)
• Increased access to loans for consumers, as lenders have more complete information
• More control over the data made available to third parties, and greater visibility of where and how it is used

Taking the lead on change

Open banking flavoured initiatives are already underway and have the potential to change the financial services market by improving processes and stimulating innovation and competition. Banks and other financial institutions will need a solid strategy — and the right tools and platforms — to empower consumers and evolve new types of services in a more competitive environment. Those that get behind this now will likely be in a stronger position to build trust among consumers and advance on market share.

TransUnion has a trusted brand, as well as the data, advanced analytics capabilities, and technical platforms to help enable these strategies. By applying analytics to an expanded data set, we can be in a position to provide further insight into consumer behaviour — insight that can help enable organizations to build new applications and services, while maintaining controls over data security.