SUPPORTING DIGITALISATION

OPINION: OPEN FINANCE

How to make open finance work for consumers

Access to consumers' data must deliver and not penalise them

Digitalisation is affecting all aspects of our lives. Finance is no exception.

At first, new players in the financial services market needed access to consumers’ payment accounts data – also known as open banking – to widen payment options for consumers and open up the monopoly banks enjoyed in the payments market. Now the Commission is going further with its open finance regulation proposal.

Open finance will allow consumers to give financial service providers access to a broad scope of financial data. Consumers will be able to manage their data and share it with the entities of their choice. Along with data on investment and pension products, the proposal also covers access to data on insurance products.

Consumers can benefit from open finance…

If appropriately designed, open finance holds great potential for consumers. Besides enhancing consumers’ control over their data, the proposal creates opportunities for new entities to enter the market and boosts the much-needed competition in the financial services sector.

The potential positive impact for consumers is particularly big in the insurance sector, a field where ‘loyal’ customers have been reportedly paying more when sticking to the same insurance provider. In such cases, open finance covers new ground by helping to create comparability and e-switching tools that will allow consumers to choose the provider and offer that suits them best.

…but not at any cost.

While open finance is an opportunity to improve financial systems across the EU, greater access to consumer data inevitably increases risks to people’s privacy and personal data protection, and might undermine their financial inclusion. Knowing for example how much a consumer is willing to pay for a product may allow financial salespeople to disregard their needs more easily and upsell them their products. At the same time, the risk of deploying unfair practices and exploiting vulnerabilities, such as consumers’ limited access to digital channels or age, is even greater when they are using digital means of communication, such as the permission dashboards. These are some examples which EIOPA refers to as "differential pricing practices" where insurance manufacturers further adjust premiums based on factors unrelated to both the cost of the service and the consumer’s underwriting risk profile.

“The regulation should explicitly foresee a right for consumers to continue being able to access services, even if they do not agree with sharing their data digitally.”

Introducing strong safeguards for consumers

To ensure the already perilous situation of consumers is not made worse in the open finance ecosystem, the regulation must introduce strong safeguards so that access to consumers’ data delivers for them and does not penalise them.

For that purpose, the regulation should explicitly foresee a right for consumers to continue being able to access services, even if they do not agree with sharing their data digitally. Amongst other measures, it is necessary to ensure the alignment of the proposal with existing consumer and data protection legislation and the empowerment of consumers to manage which data they want to share and with which entities using well-designed permission dashboards. What is more, the regulation must come with clear rules on how, and for which purposes, accessed consumer data can be used.

This also begs the question, “who” gets to access consumers’ financial data? While the proposal allows new entities to participate in data-sharing schemes and get access to financial data, such a possibility creates considerable risks regarding companies whose business model is rooted in data monetisation.

Companies who already enjoy powerful market positions and have access to significant amounts of data, such as those designated as “gatekeepers” under the Digital Markets Act, should not be able to hoover up more data from consumers. This is the approach taken in the Data Act and we ask that Big Tech is not allowed to access consumers’ financial data under the open finance framework.

Consumers deserve more from the financial sector and open finance can be a way to make that happen. What we now need is a set of rules that protect people’s data, while at the same time enabling them to partake in the open finance framework.