Five things we learned from Tearsheet’s second DataDay Conference
- The financial services industry – including banks, fintechs and aggregators – are focusing on ways to allow for secure, consumer-permissioned data access.
- The industry in the U.S. is moving towards adoption of a standardized way to safely transfer account data as new use cases emerge.
A year into the coronavirus crisis, adoption of digital financial services has accelerated considerably.
At the center of new ways to deliver financial services is the use of customer data. Embedded finance and embedded fintech are unlocking new possibilities for consumers to manage their money and access credit. At the same time, banking-as-a-service providers are making it easy for non-financial brands to add banking and payments capabilities.
“When you have [application programming interfaces] you can actually start to reimagine financial services, pull the pieces apart, and you're going to start to reconfigure them in ways that service niche markets,” said Dan Kahn, open finance lead at Plaid.
Industry practitioners understand that access to additional data can unlock new product innovations and enhance access. Indeed, how consumer financial data is shared, and the extent to which consumers have opted in, has been the source of considerable debate in recent years. The industry is moving away from credential sharing in favor of API-based data-transfer standards that allow for security, rights and permissions. But the process of getting to this end state will take time.
Tearsheet’s second DataDay Conference brought together representatives from banks, data aggregators, network providers and startups to discuss how data sharing can help build the next generation of products and services.
Participants highlighted five key lessons.
1. Customer centricity is at the forefront.
“Democratizing access to financial services” has evolved to democratizing access to data.
Participants discussed how more customers could reap the benefits of consumer-permissioned data access. Two key outcomes of enhanced data access include new products and hyper-personalized advice. To better serve the consumer, financial data could be looked at alongside other sources of data that affect consumers’ lives, including healthcare information, noted Brandon Rembe, chief product officer at Envestnet | Yodlee.
“You need to be able to support that journey all the way up [the customer’s financial life]. Maybe they’re accumulating wealth and maybe they're a Henry, or ‘high earner and not rich yet’, all the way to when they're in retirement and regularly accumulating wealth,” said Rembe. “We're even branching out into healthcare data because that generally comes with very large expenditures on top of it or can be a predictor of expenditures later on in life.”
Others noted that open finance is part of a broader move toward open data, whereby all forms of consumer data can be safely used to develop products and services that improve their lives.
“It’s about open data,” said Nick Thomas, president and chief product officer at Finicity. “The finance space is just one of the segments of the broad universe of possible data that's owned by us.”
2. We shouldn’t expect screen scraping to magically go away. The transition toward API-based data access is an incremental process.
Eliminating screen scraping entirely is proving to be challenging for some institutions.
“It will persist because some number of banks or credit unions don't have the resources or the bandwidth to do something to stop it – many don't even know it's happening,” said Paul Diegelman, vice president of aggregation and information services at Fiserv. “The move to API access is not as simple as many want to believe.”
Others argued that while the transition away from screen scraping won’t be immediate, the momentum toward standardized API-based data access will pick up as technologies evolve.
“This is not a single-year journey,” said Wilson D’Souza, chief technology officer at Akoya. “There will be some long-tail clients [that carry out screen scraping], but I think it's our responsibility to bring them to the table, because in this digital world, we shouldn't let those folks stay behind.”
3. Industry-wide cooperation will help push the standardization of data transfer frameworks between financial institutions, fintechs and others.
In North America, industry practitioners are coming together to develop common, interoperable standards for consumer-permissioned data sharing through the Financial Data Exchange (FDX), a non-profit standards body launched in 2018. This market-driven strategy stands in contrast to approaches taken by some other countries, including in the European Union, where regulators have mandated consumer-permissioned data sharing through the PSD2 regulation.
“We're now pivoting to a much more modern, more efficient, more secure way of [data sharing] with APIs and the FDX API,” said Don Cardinal, managing director of FDX.
FDX, which has almost 200 members, is quickly evolving its API beyond checking and savings accounts and credit cards. Around 16 million consumers are using the FDX API, according to the nonprofit.
“[In the early evolution of the FDX API] the number of fields was a lot smaller, and some of the ideas of certification and how to have user experience flows really didn't come to mind. It was strictly a data play,” said Cardinal. “Now that we added a lot of the fintechs on, and two thirds of our members are not banks, we have this great robust holistic ‘end to end in the data chain’ view of things.”
The FDX governance model, which Cardinal said balances input from data recipients and data providers, follows the Internet Engineering Task Force (IETF) model. Some practitioners emphasized that the adoption of common, interoperable standards through the FDX API is a work in progress.
“Phase one for us is ‘how about we get rid of screen scraping,’and phase two is ‘keep extending FDX support across our banking-as-a-service APIs,” said Ben Metz, head of digital at Jack Henry. “You should just be able to get a token, go to the internet, look at the documentation on the APIs, [confirm] they have FDX support, and start wiring. That's our goal, but where we are today, is in the process of removing screen scraping.”
4. Alternative data is becoming mainstream, with new underwriting models being embraced by traditional credit bureaus.
In the traditional credit system, it can be difficult to access enough data to underwrite many consumers.
“For example, if I'm living in an area that currently has a banking desert, it's really difficult for me to even establish any level of financial identity in any regard, with which I can get access to traditional FDIC-insured products,” said Matt Harris, CEO and co-founder of Bloom Credit. “The second part of it is that the way that we legislate a lot of data currently makes it really difficult to use [certain] forms of data that are available on the consumer.”
An example he raised was a practice in some countries where lenders underwrite consumers by looking at mobile phone data.
In the U.S., traditional credit bureaus are broadening the types of information included in credit scores. For example, Experian Boost, launched in 2019, allows consumers to add utility and telecom bill payments to credit reports. This is notable because these elements have traditionally been excluded from credit reports. Other industry participants, including FICO, have embarked on similar moves. For example, an offering called FICO XD incorporates utility and telecom bill payments.
“[As part of Experian Boost] we did a partnership with Fiserv, where they can aggregate directly to the utility company,” said Paul DeSaulniers, senior director of data strategy and partnerships at Experian Consumer Services. “Through the consumer consent and the consumer providing those credentials, we can reach out directly to the utility and pull down all of that information ... and we add that information directly to their credit profile.”
According to Experian, as of February 2021, 60% of people who participated in the program increased their credit scores, and 85% of thin-file consumers who participated in the program raised their credit scores.
5. Data beyond account information, including payroll, can enhance access to financial products and services.
Consumer-permissioned data access is evolving past account information to payroll data that can help lenders better understand prospective customers’ financial situations. Payroll API providers such as Pinwheel, Atomic, Argyle and Plaid (through Plaid Income) have sought to meet a growing need for the verification of employment status, income and ability to pay.
“You've probably had to upload a pay stub or give somebody your W2 or email your W2 to somebody else – it's very manual,” said Shmulik Fishman, CEO and co-founder of Argyle. “What investors and the community are starting to see is that there's a huge opportunity to take paper out of the equation.”
Offering up payroll information is even more challenging for gig workers, and the company’s toolset can help account for multiple sources of income, he said. “You can't just look at a pay stub – that isn't [the entirety of] somebody's income anymore, and so that's the reason why a service like ours is so needed to understand the consumer that you're evaluating,” he said.
The company said it works with job boards, lenders and mortgage processors, including fintech Stilt, which offers loans to immigrants in the U.S. “They’re able to see, in real-time, somebody’s work – Are they showing up? How much have they earned but not yet deposited into a bank [account]?”