And, will “PSD3” and “GDPR2” usher in a new age of collaboration and competition? (competition is good right?)

Luca Borella (Financial Economist), Awa Paola Thiam (Writer)

The Earth is data-rich, and devices around the globe continue to spew out jets of it. According to the International Data Corporation (IDC), we’ll reach a staggering 175 Zettabytes (175,000,000,000,000 GB) by 2025. 

Aggregating this unrelated data on a centralised platform will create a composite image that can give consumers a holistic view of their information, helping them make more convenient choices in the future.

We have been brainstorming and debating for a long time to decide which organisation is most suitable to be the provider of this service. We eventually came up with a short answer: any. 

In fact, it really depends on each individual’s set of values, beliefs, ideologies, and other external factors such as space and time. 

Consumers might completely trust their local food co-op to handle their data for them; or they might opt for a friendly tech giant like Google; otherwise, they may already be in a happy, long-lasting relationship with their bank. 

Some people believe that financial institutions are those best positioned to offer such services to their already vast customer bases. Firstly, financial institutions historically enjoy an incomparable level of trust, given that they are the principal, and sometimes only, capital gateway for their customers. 

Secondly, thanks to recent regulatory developments (i.e. PSD2 in the EU and Open Banking in the UK), financial institutions have realised the imminent hazard posed (principally) by tech giants and have stepped out of their comfort zone to defend themselves.

These regulations have created a feedback loop of opening up, which is travelling across industries. Financial institutions often claim that PSD2 affects them more than different data regulations and laws (notably GDPR) affect tech giants and other traditional industries. 

In other words, financial institutions have been forced to open up and now financial institutions want other industries to do the same so they can utilize this data for the consumer’s benefit.

From GMT+10 to GMT+5.5

Australia, for instance, is taking further steps towards what behind the scenes is being called ”GDPR2”, which will bring some paradigms of Open Data to reality. 

The Australian Government has decided to legislate the Consumer Data Right (CDR) to grant consumers access to their own data and give them the means to share it with selected Third Parties Providers. The implementation will begin in banking – following in the footsteps of PSD2 and Open Banking – quickly followed by energy, telecommunications, and multiple other sectors. See here to test the AU CDR APIs on an Open Bank Project sandbox. 

The Bill provides the architecture for drawing different sectors into a CDR regime. It leans more towards the data side of it than the banking side, hence the lack of PISP or similar. However, banks have to show the consumer’s comprehensive financial situation, making it a relative of PSD2.

India is following suit with the Data Empowerment and Protection Architecture (DEPA) and Sahamati account aggregator (AA). Nandan Nilekani, the co-founder and former chairman of Infosys, presented a model based on the sharing and consumption of data that will empower users in the region. DEPA and AA will enable individuals and SMEs to unlock the power of their data stored in different organisations, such as banks, telecom companies etc. 

The idea is to enable underserved individuals and businesses to leverage their digital footprint in order to access better loans, thereby including them in the formal economy. They intend to start with the financial sector and to expand it to help users obtain better healthcare and education (if you want to learn more about Open Bank Project in India check this out). 

What this means for your financial institution 

A new technical regulatory wave on GDPR in Europe could potentially revolutionize the role of Third Party Providers, who will be able to aggregate data not only from multiple banks (PSD2) but also from utilities, health care, and other types of organisations.

Credits for the image above to Alfonso Ayuso Calle, Chief Innovation Officer, Banco Sabadell

This newfound access to data is expected to:

  • incentivise entrepreneurs to create new personalised products, 
  • help consumers make more informed decisions, and
  • drive both intra and cross-industry competition, thus definitively smashing down the already crumbling walls.

In light of these recent trends, financial institutions like yours are rethinking their business models as well as their technology infrastructures.

Traditional processing tools cannot handle the vast quantities of data that users create, which, according to IBM, have surpassed 2.5 quintillion bytes a day. The need to find a balance between processing speed and adequate security remains strong. 

Nevertheless, those who succeed in becoming such Third Party Providers will benefit by serving the customer directly. The others will be commoditized and are likely to become invisible back-end infrastructures. 

Offering consumers highly personalised products and services at the right moments in their lives can help financial institutions close the rift and maintain their “status”. To do this, they must harness new technologies and start reevaluating how they do business.

Not sure how to take the first steps? Get in touch with us at contact@openbankproject.com and we can consider your options together.