Blogs

By Rolf Merchant, Head of Member Policy &amp; Public Affairs at <a style="color: #4bbb87;" href="https://www.innovatefinance.com/">Innovate Finance</a>
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Data is a hugely valuable currency in the financial services world. In sufficient quantities and with the knowhow to analyse and interpret it, data provides a tremendous amount of knowledge for financial services companies. The old tenet “knowledge is power” could justifiably be updated to “data is power” for 21st century finance. 
<h3>What is Smart Data? </h3>
Smart Data is the secure sharing of customer data with authorised third-party providers upon the customer’s request. 
These providers then use this data to provide innovative services for the consumer or business user, such as automatic switching or better account management. 
Data sharing could unlock a huge number of benefits for consumers and businesses alike. 
We might see the creation of an entire “data economy”, where consumers are more informed and empowered because of the data they can access, and where businesses can make use of shared data to create and improve products and services that target real needs and desires. This is why FinTech companies are so interested in the Smart Data initiative. 
<h3>Next steps for Smart Data</h3>
We were particularly interested to read the report in June from the UK government’s Smart Data working group, <a style="color: #4bbb87;" href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/915973/smart-data-consultation-response.pdf">Next steps for Smart Data</a>. It was encouraging to see a reaffirmation of the value of financial services-specific initiatives such as Open Banking and Open Finance. 
The report detailed a number of the brilliant uses of Open Banking by FinTech companies - including by some of our own members like Yapily, Yolt and Monzo - showing the power of shared data in action. 
It was even more promising to read practical proposals for cross-sector coordination. It’s worth referring to the <a style="color: #4bbb87;" href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/978396/KalifaReviewofUKFintech01.pdf">Kalifa Review</a>, which listed taking a “cross-sectoral approach” as the number one recommendation for Smart Data. 
Innovate Finance agrees with the working group’s four key principles to inform the design of cross-sector coordination and collaboration, as detailed in the Next steps for Smart Data report. These four principles are:
<ul>
<li style="font-weight: 400;" aria-level="1">Sectors working together – bringing together all bodies leading sectoral delivery of Smart Data with industry and government to enable coordination.</li>
<li style="font-weight: 400;" aria-level="1">Develop the Smart Data ecosystem – sharing information and drawing on shared expertise to tackle common challenges and support cross-sector innovation.</li>
<li style="font-weight: 400;" aria-level="1">Enable interoperability – to address barriers to competition and realise Smart Data benefits for consumers and businesses.</li>
<li style="font-weight: 400;" aria-level="1">Inform the ongoing development of the Smart Data framework – ensuring the ecosystem remains responsive to changing user attitudes and technological developments will be important. Pooling research and findings to develop a cross-sector picture of adoption, attitudes and capabilities will provide an opportunity to identify and consider emerging opportunities and challenges.</li>
</ul>
<h3>What does FinTech want from a cross-sectoral approach?</h3>
The Kalifa Review listed specific concerns of the FinTech community relating to Smart Data, including smaller firms not having sufficient access to data to develop innovative products and to compete with established firms with large customer bases and data sets. There is a real need for any cross-sectoral approach to take into account the interests of FinTech startups and scaleups. 
The Kalifa Review stressed the need for the government to facilitate (or, where appropriate, mandate) the sharing of data not just within sectors (such as Open Banking), but also between sectors. It added that a cross-sector approach must bring ​​firms that hold very significant amounts of data, such as large technology companies, into the fold.
<h3>Where does Open Finance fit into the picture? </h3>
Open Finance could unlock new uses of Smart Data that go above and beyond Open Banking. We might see far more holistic personal financial management platforms, where consumers can have a really clear, up-to-date and accurate picture of their financial life. This in turn can help consumers make more informed financial decisions, and even receive inexpensive financial guidance through AI crunching their data. 
Open Finance promises to unleash a new wave of FinTech innovation, so naturally the industry is keen to see it pushed forward. The FCA is due to release its next steps for Open Finance in the coming months. 
The majority of contributors to the Kalifa Review, and many Innovate Finance members (which include Third Party Providers and Technical Service Providers), agree that Open Finance is worth pursuing within the context of the wider Smart Data project. Open Finance should interoperate with other open data initiatives in the UK. The UK should also decide whether to align with international initiatives, such as the EU’s Digital Finance Strategy. 
The Kalifa Review underlined that the implementation of Smart Data should have financial inclusion at its heart, and that the needs of vulnerable customers should be recognised and addressed where possible.
The Review raised further points about the principles Open Finance that may be relevant for the approach of cross-sector Smart Data initiatives: 
<ul>
<li style="font-weight: 400;" aria-level="1">The scope should be broad (i.e. no product should be ruled out), so that consumers and businesses will eventually be able to access their financial data through a “one-stop shop” aggregator.</li>
<li style="font-weight: 400;" aria-level="1">Implementation should be phased, with access to products and functionality being developed under an agreed roadmap over an appropriate time frame. The implementing body should have the power and flexibility to agree variations to the roadmap, if required, within certain parameters.</li>
<li style="font-weight: 400;" aria-level="1">Users should have “write access” – i.e. be able to provide instructions to a provider via a third party as well as to access data.</li>
<li style="font-weight: 400;" aria-level="1">The approach to implementation should be outcomes focused. Ideally, a set of desired outcomes should be agreed at the outset, and a methodology for measuring those outcomes put in place.</li>
<li style="font-weight: 400;" aria-level="1">Ensure the consistency of data protection legislation and open data models. Data protection law needs to be consistent with data portability and real time access across the economy. Engagement with the Information Commissioner's Office (ICO) will be necessary to clarify how GDPR and data protection rules interface across sectors and with the need to innovate. Resources will also need to be made available for this.</li>
</ul>
We’ll be watching with interest as BEIS works to develop a cross-sector Smart Data strategy over the remainder of 2021. There is certainly an important area of government activity for FinTech - and it overlaps very clearly with the FCA’s work on Open Finance. 
We look forward to working more with our members on both aspects, and continuing to put forward the FinTech vision for a really valuable and consumer-centric UK Smart Data ecosystem.