In 1994, Bill Gates issued a prediction that seemed very futuristic: banks, with their branches, checks and mostly physical money, were going to disappear to make way for online and remote banking, along with the massification of virtual currency.
Gates was right and even fell short.
The twenty-first century is the century of data and today, the impressive technological change, the digitalization of financial services, the massification of data and its low-cost processing capacity allows the emergence of new actors, making banks less necessary. Competing would be in the interests of individuals and businesses, particularly SMEs, but that requires regulation to allow and promote it. That is why it is necessary to move towards an “Open Banking” scheme, in which banks open the data of their customers, always with their consent, in order to inject more competition for the benefit of people.
If you ask one what the essence of a bank’s business is, we would probably answer that it is to take money from depositors, lend it to others, and charge a difference for that service and the risk involved. The answer is not incorrect, but it is only the tip of the iceberg. In essence, a bank’s business is information; a data business. How so? For example, when it lends money it must assess the solvency and ability to pay of the client and with it its risk. The same goes for credit cards or products that a bank offers to its customers based on their purchase and payment profile, and their data and transaction history, which the bank knows, processes and stores. That information has value and not little.
The problem is that this valuable information is available only to the bank in which one is a customer and not to the rest of the institutions that could compete by offering better or cheaper financial products and services. What if we opened that information recognizing that it belongs to customers and not to your bank? If, with our consent, could we give access to our payment history, credit information, to other financial institutions? Or if we could easily move from one institution to another with all of our information, including card numbers, automatic payments, payment and card history, appraisals and title studies for mortgage loans?
This would make it possible to receive more attractive offers than those of the bank itself and would make it easier to switch to another institution, which today can be a nightmare. Consumers would win and increase competition, opening up space for new suppliers – for example, Fintech companies – that can offer better alternatives for accessing credit, savings, investments and insurance. Thus, access to credit and other financial services would be expanded to sectors currently excluded or underserved by the financial sector (including youth, women, migrants, the elderly and SMEs); the fees and commissions charged would fall, and the current high returns that banks have would fall.
That is why we propose to open the information that is of the clients, and move towards a model of “Open Banking” that is successfully deployed in developed countries such as England, Australia, Japan, Israel or Hong Kong, but that also begins in Latin American countries, such as Brazil and Mexico.
This requires legislation so that banks are obliged to share the information of customers who consent to it through a protocol and a standardized, secure and interoperable platform between banking and non-banking institutions. Not only is this technologically possible, but the Constitution itself, since 2018, recognises people’s right to their personal data. Therefore, credit information and history is from people and not from banks, and customers are free to share it with the provider they want.
Opening up banks and moving towards a future without them as we know them today depends on our willingness to make ambitious changes for people and businesses. There is no conceptual or technical impediment to not taking that big leap. Surely the traditional banks will oppose it on the grounds of all sorts of risks. Taking away their monopoly on customer data forces them to face increased competition, a dissipation of their current rents, and consumer empowerment. Precisely the direction in which we should be moving.
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