It is fair to observe that a great many people think that the regulatory push for open banking in the UK (and the money spent on delivering) has yet to deliver any real benefits for the average consumer. And this is, to be honest, a fair point.
The UK’s “mid-term” report on “Consumer Priorities for Open Banking” by Faith Reynolds and Mark Chidley (which is, by the way, an excellent piece of work and well worth reading) set out just why it is that open banking by itself delivers quite limited benefits for consumers. They point towards a future of open finance (and, indeed, open everything else as well) and talk about an industry that uses the new technologies of artificial intelligence, APIs, digital identity and so on to take a more complete view of a customer’s situation and provide services that increase the overall financial health of that customer. I thought this was a very interesting way of creating a narrative for the next-generation fintech and regtech propositions.
We are beginning to see initiatives focused on financial health and wellness. My good friend Rik Coeckelbergs, founder of “The Banking Scene” in Belgium, talks in those terms also. He recently wrote that a bank must support its customers in having “a financially balanced life, helping them to reduce financial stress by improving their financial wellbeing”. The more I think about it, the more I agree with Rik that this should be one of the societal responsibilities of banks as heavily-regulated players crucial to the nation’s well-being. Just as electricity companies are regulated to not only produce electricity but not to pollute their environment or kill consumers because of poor safety, so perhaps it is time to apply some similar thinking.
Where should we start? As the US CFSI reported last year, while more than two-thirds of executives surveyed said financial health was a “strategic priority”, less than a fifth were actually reporting on customer financial health, which would seem to be a good trigger for practical initiatives and a way to encourage regulators, partners and customers themselves to ask questions about improvements in financial wellbeing. That’s not to say that nothing is happening, of course! For example, JPMorgan Chase committed to give $125 million over the next five years to non-profits working around the world to improve the financial health of underserved communities and efforts such as this deserve applause.
Writing last year in the Harvard Business Review, Todd Baker and Corey Stone explore some interesting ideas around this. They say that the prevailing paradigm (of markets and choice) has created a regulatory system that “largely places responsibility – absent the most egregious abuse – on the individual consumer”. They argue for a radically different regulatory structure to more directly connect the success of financial services providers to their customers’ financial health, a where-are-the-customers’-yachts approach where banks prosper when their account holders prosper. They draw an interesting analogy by comparing this approach with experiments in the American health marketplace that pay providers for improving patients health, “rather than paying them simply for treating patients regardless of the outcome of the medical intervention”.
I think this is an important shift of perspective. Refocusing the financial sector on delivering financial health, rather than financial services, has implications that go way beyond choosing better credit cards or spending less on coffee and more on pensions. The American Psychological Association considers financial stress to be one of the top stressors in America and research shows clearly that financial stress and economic hardships link to a variety of very negative physical and mental health outcomes, ranging from abuse and neglect to household dysfunction and heart disease. There is no doubt about it: improving financial health improves health in general.
In order to do this, financial health providers will need a better picture of individuals and their circumstances. They need the raw data to work with. Just as the doctor needs X-rays, bloods and histories, so the AI that powers an effective financial health provider needs your transaction records from your checking account, your mortgage, your pension, your insurers and everywhere else. In the current economic downturn, to highlight the obvious example, many people make a lot mistakes in managing their finance through stressful and unfamiliar circumstances. But as was pointed out in the Wall Street Journal recently, most of these mistakes are very basic. It does not take a giant supercomputer and all of the data in the word to stop people from falling into common traps around the way they borrow, save, spend and invest.
This is why I am sure that the connection between open banking, open finance and open data should be a priority for our financial sectors and I think it means a revolution that will make life better for the average consumer. I wouldn’t go so far as to say that we need a National Wealth Service on Jersey, but as a start we might imagine a situation where employers strive to improve employees wealth by, for example, funding financial counselling as an employee benefit. The cost of providing such services, in a world of AI and machine learning, is affordable and delivers something of real value to the normal person who is, frankly, as ill-equipped as I am to make decisions about pension plans and savings and so on.