The flow of financial data, who controls it, what technology powers it and what regulations protect it, is a debate that’s long seen banks and financial technology companies situate themselves on opposing sides.
However, strategic partnerships between the two parties are successfully bringing banks closer to their customers and there’s a growing school of thought that banks and tech companies can actually be friends, not foes.
But we’re not all singing kumbaya around the campfire just yet. There’s still the issue of financial data, who owns it and who controls it to be figured out.
"With the ability for Fintech companies to access banking data with a set of credentials, it’s understandable that banks may be dubious of them and their potential to compete"
Fear of Disintermediation
Banks fear that technology companies will disintermediate them, making their services more of a commodity and less of an institution that provides trusted advice, which is why the fight for who controls the data is still so heated. With more solutions giving customers beautiful bank-like services with an easy-to-use front end, like transaction management, lending and foreign exchange, consumers have fewer reasons to go directly to a bank’s website or mobile app to engage with the bank.
Banks have an incredibly important role to protect the security of their customers, and are right to be concerned about any perceived threat to their users’ financial data. The temporary shut off of third-party aggregators’ access to this data back in 2015 exemplifies this concern, and while done in the interests of the customer, it isn’t a solution–there needs to be one that gives power to the consumer or small business owner.
The Consumer Financial Protection Bureau’s ongoing inquiry into data portability is a great step towards helping the consumer, but the agency shouldn’t be the sole catalyst for industry-wide regulation.
With the ability for Fintech companies to access banking data with a set of credentials, it’s understandable that banks may be dubious of them and their potential to compete. Increasingly, though, banks and Fintech companies are recognizing the strengths of their counterparts–teaming up to help share their customers’ data in a secure way and giving the user power to put their ecosystem together.
It’s important to note that better access to data from the bank’s system gives the bank control. But moving forward, consumers will expect to have the bank’s system work seamlessly with the apps that they use in their daily lives. Banks that don't integrate will be left behind.
Direct bank feed integrations in the US exemplify how powerful this type of collaborative relationship between banks and financial technology firms can be. Integrations between accounting software and banks are a simple but powerful example. The customer provides their login details to their financial institution and the direct bank feed into their accounting platform is set up–with the authentication completed in the background and without the accounting software provider ever seeing or storing the login credentials.
The next stage on the financial web journey will be data sharing–controlled by the user. The applications are endless, including the ability to leverage accounting data and automation to help banks make more informed and automated lending and payables decisions–using their front end and building long lasting customer relationships with both the bank and the financial technology firm.
This is all a crucial element of the financial web, where a small business owner’s financial institutions, advisors and business management apps are connected all in one platform–giving them a complete view and control over their financial and business data.
While these direct connections are incredibly important, the financial services industry, as a whole, has an opportunity to set the stage so their customers’ data and where it ends up is protected. Both banks and Fintech should develop the framework for access to customer data in partnership–leveraging the software building capability of Fintech providers and the regulatory expertise of the banks. It’s important for banks, because those that don't participate in shaping the future of the industry run the risk of experiencing an unfavorable outcome.
At the end of the day, the customer owns and controls their financial data. If banks and tech companies team up they, as well as the customer, all benefit–and that is powerful.