The Future Of Lending

Part 2 | Improving Consumer Confidence In The Use Of Their Bank Data

October 29, 2019 The ID Co. & LSB Season 1 Episode 1
The Future Of Lending
Part 2 | Improving Consumer Confidence In The Use Of Their Bank Data
Chapters
The Future Of Lending
Part 2 | Improving Consumer Confidence In The Use Of Their Bank Data
Oct 29, 2019 Season 1 Episode 1
The ID Co. & LSB

In the world of Open Banking and FinTechs, and with the speed of technological change affecting the financial industry, how can consumers be confident in how their data is being used and who is using it? What can financial services firms, traditional banks, lenders, FinTechs and intermediates do to improve consumer confidence?

The success of data sharing through technology is dependant on consumer engagement, whether it is personal consumers or SMEs. One of the reasons organisations cite for consumers not engaging, or having concerns about Open Banking, is their fear around the use of their data. Are these fears founded and what can the industry and individual firms do to improve consumer confidence in the use of their data and Open Banking?

James Varga, CEO of The ID Co., joins Harry Hughes, Senior Insights Manager at the Lending Standards Board, sit down to discuss all this, and more, in our two-part podcast.

Show Notes Transcript

In the world of Open Banking and FinTechs, and with the speed of technological change affecting the financial industry, how can consumers be confident in how their data is being used and who is using it? What can financial services firms, traditional banks, lenders, FinTechs and intermediates do to improve consumer confidence?

The success of data sharing through technology is dependant on consumer engagement, whether it is personal consumers or SMEs. One of the reasons organisations cite for consumers not engaging, or having concerns about Open Banking, is their fear around the use of their data. Are these fears founded and what can the industry and individual firms do to improve consumer confidence in the use of their data and Open Banking?

James Varga, CEO of The ID Co., joins Harry Hughes, Senior Insights Manager at the Lending Standards Board, sit down to discuss all this, and more, in our two-part podcast.

Harry Hughes:

Welcome to part two of The Future Of Lending podcast. I'm Harry Hughes from the lending standards board and I'm here with James Varga, CEO and founder of The ID Co.

James Varga:

Lending is a pretty competitive space. I think it's fair to say these days, you know, depending on on the product and the high cost short term versus the mortgages versus the asset financing to whatever type of lending decision you you're there to make or whatever products you're selling. I think this is a fantastic opportunity, uh, to stake out your claim, right, is to differentiate yourself from the market and that's a journey that the industry is going to have to go on as a lender, you know, I always suggest people start small, connect the bank account to maybe help some of the affordability, credit risk, some of the low hanging fruit, reduce your fraud and impersonation fraud, that sort of thing. But also it gives you a chance to iterate through that. The, the data is now accessible enough that you can take a different approach. You can figure out what works for you and your products and your audience and start to roll it back up into your product more holistically over time.

James Varga:

But you don't have to start re-engineering your whole platform just to use bank data. You can start somewhere small and then use it to figure out how you really want to pitch yourself into the market.

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To dig in on that slightly. So if, um, cause I think that we have lot of very big firms and lots of smaller ones as well. And I think that's a really key question is how do I, how do I get into this? And this all sounds great and, and like, but you know, do you need huge tech teams in today? How knowledgeable do I need to be as the business to drive it forward? Would you be able to give a bit more detail around sort of where, where you start and what areas that are quite as you put it in sort of low hanging fruit?

James Varga:

Well, to shamelessly plug ourselves, that's what we do is we help businesses on that journey. Uh, open banking is just data is how you use it. So the first challenge is getting access to that data. Um, as a regulated firm operationally, that's pretty easy. I mean, you just go register and go through that process. Technically it's more of a challenge, uh, than, than we'd like it to be in the industry, and nothing, nothing is ever a single standard and as easy as you think. Um, working with bank data for so long, it's, that's been the challenge is how do we, how do we help people start quickly and easily, right? Um, one of the things that we've ended up building is a platform that you can use without integrating. So we have a zero integration platform, uh, because I absolutely fundamentally believe that there's a huge opportunity for the tier twos, and tier threes are the world, the smaller businesses, the credit unions and community banks, the independent lenders, the specialist asset financing.

James Varga:

You know, I could be selling leasing for farm machinery, you know, Welsh farmers or whatever it is, it doesn't really matter, but an opportunity for those businesses to, to step up their game. And operate at a, at a much better level that maybe has been reserved for the bigger institutions that have much more resource. Yeah. Um, just being able to see a businesses or consumers bank statement, even in a manual setting, can have a huge impact. You know, so there's nothing stopping. I think the smaller businesses today getting started on that process, you know, and, and whether us or somebody else in the industry using using platforms like what we offer to make that journey easy.

James Varga:

You know, if we can get somebody up and running in two days using bank data, that's pretty exciting for us. You know, cause it's not about having a team and taking six months and nine months and 12 months and building up awareness of it. There's enough expertise out in the market to be able to bootstrap that process and just start somewhere small. Start with that low hanging fruit. And then as you get into it, as you start seeing data and understand it, then build it into more and more of your process.

Harry Hughes:

Mm. Yeah. Because I suppose cause otherwise you have the same problem essentially where if you, if it's only accessible to big providers, well they're the ones with the data anyway. So you sort of, it's, you're not opening it out in terms of the product and offering that to could be available.

James Varga:

And this is the point of open banking in the UK is, you know, and the reason why it's driven by the Competitive Markets Authority is to increase competition in the market, you know, is to make things more accessible both both for the consumers and the industry.

Harry Hughes:

Hmm. I think one area that we're, I mean the LSB has been involved, well is involved in lots of the moment is um, fraud work and sort of the empty, uh, authorized push payment work in particular. Um, obviously that's really hot topic and you'll no doubt notice I have endless messages that you're getting on your phones and did new steps that have been put in by banks and, uh, providers. How does that work, do you think in terms of this potential almost contradiction in terms of saying you want to trust us in digital banking, you want to be able to, you want to give your data and share it, but at the same time saying, be really careful who you share your data with. Cause you know, you don't know who's listing sort of thing. How does that work do you think?

James Varga:

I don't know. It's a balance isn't it? You know, it's, it's trying to, trying to, trying to educate the world around privacy and security is a really tough thing to do. Um, and, and the reality is that fraudsters are always better informed, smarter, more motivated than the industry is to prevent fraud. Right? So you always have this imbalance in the, in the conversation. Um, I think it is just about a balance. You know, it's about frameworks like open banking and the OBE and the regulators working to, to make it a known term so that people can reference that, 5g being the example, right? So that you can go, okay, I kind of get that it's an official sort of thing. Um, but it comes down to responsibility as an industry as a whole and just trying to do as much as we can to, to, to I guess, guide people along the right path. Um, if that makes sense.

Harry Hughes:

Yeah, no, absolutely. Yeah, because it's a bit of a, cause you have to have that sort of education piece with the fraud and scams side of it. Um, and I suppose, I mean I was, I was gonna ask around things like those messages, how best to put those in place, and keep the sort of, um, the journey, sort of the product journey smooth and customer journey. But I suppose it's, again, it links back to what you were saying about those friction points that actually, if you can make the journey as good as it can be, you then have a bit more choice too, and you can be more impactful in terms of where you're putting these warnings and um...

James Varga:

Well and I think without overdoing it, you know, I think a, a maybe a good good example is GDPR. I'm a huge fan of GDPR. I think the transparency, the portability, the rights that it affords consumers is, you know, and underpins open banking to begin with. But it just makes sense. You know, us as consumers, we should have some control and some, some, some awareness of what's happening with our data. Um, just taking a regulatory approach to solving that problem doesn't always work out in the best way.

James Varga:

Now every website has an accept button on it. Yeah. I think that has almost desensitized the world to issues of personal data and terms and conditions, privacy policies, GDPR, that whole related sort of kettle of fish. Now that, uh, we just click on the button to access the website. I, it used to be reserved for more sensitive situations, you know, like signing up to something. Now you have to click a button to access any website to read news to, you know, search for flights, to do anything.

James Varga:

I wouldn't be surprised if, you know, when stats start to come out over the next couple of years, whether, you know, so few people actually read even the first sentence now, you know, I mean, I find myself, did I just click the button? I don't even, it's the bright button. Whatever the bright button is, the stopping me see on the page, I click.

Harry Hughes:

It's similar to the enable cookies, but most people, you know, who knows what cookies are,

James Varga:

Yea, you know, what I want is to, you know, read some news, not read a big policy. And that's the appropriate levels of friction at the right point. Responsibility side that, that I think always needs to be there. But not overdo it.

Harry Hughes:

So thinking. Exactly. So thinking about it and making it, um, making it impactful or at least interesting. So, so customers are actually getting something from it rather than tick box.

James Varga:

And continue to empower consumers. You know, when you, when you, when you look at the, some of the data breaches, you know, this is really the impact of doing things wrong is having big data breaches and, and people's data is being now out in the wild and the concerns that we have as individuals from a privacy and personal data point of view are, you know, quite right on, on those issues. Uh, for me, open banking is a, is a different approach that says let's empower the individual to share their data on more of a one-to-one basis instead of all my data being shared like it is to the bureaus into one big honeypot that then becomes a, uh, you know, at risk as we've seen in the past.

Harry Hughes:

And smooth segue into it. So, on the data breaches side, I mean, do you think that they have an actual impact on consumer confidence in terms of sort of changing behavior? I mean obviously know, you know, once it's happened and it's not never a good news story, but, um, do you think there's a potential that there could be enough, um, you know, breaches or one so significant it actually damages sort of open banking or do you think it's less, less of a risk than that?

James Varga:

Well, if history tells us anything, sometimes you have to look at history, I would say absolutely not. You know, Cambridge is a great example that hasn't really changed the world. The Facebook user numbers are pretty much what they've always been. There's been a small dent in that, uh, and, and, and those numbers, but not anything meaningful. I guess it depends again in the context, you know, if consumers see the value of it, um, uh, you know, Google is probably a great example of how Google gets away with, with selling advertising based on your personal data. But people get the exchange of that. They get the exchange of Facebook. You know, I can be involved and share my data for the benefit of Facebook. Some point, absolutely, we might get a critical mass in the market, but given how many data breaches we've had over the last 10 years, um, I don't know if we ever will. I mean, at what level do you have to get for that to really being meaningful. And most people's usernames and passwords have been exposed in one form or another. Your personal data is out there. I mean the bureaus have it, the fraudsters have it. It's all there. It's now, you know, more of a mitigation, uh, strategy that we need to take to look at how do we reduce the impact. But the data's out there and it hasn't really changed the world.

Harry Hughes:

Absolutely. And I think you get to the stage where consumers are at least, you know, you sort of price it in to, to be able to access it and to be able to, you know, continue to, to live sort of in that, um, in that space.

James Varga:

And this has been from an identity point of view, I spend a lot of time in the identity space. I would love as us as individuals have a, a absolute control of our personal data. And our identity I think, I think as an industry, at least in the UK, we're still a few years away from getting to the point where we, we view identity in the consumer sense, we view people's identity in the, in the right way. I mean it almost has to become a utility that's there. Something that I own and manage is the only way to really solve the problem is to reverse the conversation, I think we started talking about it at the beginning, instead of us focusing on organizations on sharing data, focus on putting consumers in control of their data. Uh, I think the more data breaches, the more privacy issues, the more security concerns that are other, the more pressure builds up to make that shift.

James Varga:

Um, but I do think it's going to be a couple of years before we, we, we really convinced the world that actually us consumers were the only ones that can kind of control and, and manage this data on ourselves as is, is for us to do it, not for other people to do it.

James Varga:

Yeah. And so I suppose it's a nice, a nice way to sort of tying up the conversation given where we started. But do you think if you were driving something like consumers owning their data, and appreciate this is, you know, we might be talking ten, tread two years from now, maybe. Yeah. Um, but surely that would require something beyond individual firms in more of a certain industry or government and probably level. Is that how you'd see it? Um, so I don't think it's going to be government that really solves a problem. I think identity in that sense.

James Varga:

If we talk about consumer identity needs to, needs to become a utility and the best example of have been able to give it recently as your mobile phone number, right? We now live in a world where my mobile phone number belongs to me. I can transport it to any service that I want, right? I can share that. I can move it between providers and the mobile industry then build services on the back of that. The same thing needs to happen with identity. It needs to become a utility. It needs to be something that I own and manage, I control, but has a network built up around it, right? It has a, uh, a marketplace of people contributing into that identity utility, uh, to strike the balance between value and control, right? Because identity has always suffered from the chicken and egg problem is, you know, you can have a million people having an identity, but if there's nowhere to use it is pointless, but no one will, no one will, will accept an identity until you have a million people using it, you know?

James Varga:

So it's always suffered from that chicken and egg. I think we just need to transcend the conversation. That sounds, you know, maybe a little bit esoterical but uh, we need to kind of transcend the conversation beyond any single proposition and brand into, into something that's there as a fabric. It's just a utility. It's just something that exists that the, that as consumers we use, if that makes sense. I think what's interesting around open banking as is, is it lays the foundation for that. GDPR has come along in the last couple of years and said, actually, as consumers, we have a right to own and manage and do things with our data. Right. Which clarified a huge amount of uh, differing views in the market around who owns personal data. Is that yours or is it the corporations and the institutions? Um, but also open banking as a layer on top of that has said it's okay to make money from that. It's okay to build models, business models, commercial models around consumers sharing their data and making money from it. I think that's a pretty fundamental premise that we can now use to build towards identity, right? Cause it's kind of like the core core fabric of identity as consumers owning it and being in control and you still need to make money out of it because otherwise how you're going to pay for it.

Harry Hughes:

And as you, as you mentioned, there's actually a kind of innate understanding, or not innate, but an understanding from consumers that um, that their, their identity and their information is worth something because they appreciate that, well, yes, Facebook gets it, but Facebook is free for me and I get to do all of this stuff.

James Varga:

And this is the, the, the financial data, right? For me, this is, this is the, the great thing around financial data and open banking a bank statement data is there's a lot of value in that. It's a, it's, it's a great place to start from a personal data point of view cause it can be used to solve the problems that we've been talking about, you know, um, without it being as sensitive as healthcare data because that can be very, uh, very sensitive depending on the, on the, on the situation and the person. But stronger than things like social data, you know, um, how often I party or what I like to do in my spare time on my Facebook account only has so much value from a business point of view. You know, would you, would you issue a mortgage? Would you give somebody a mortgage on the back of a Facebook?

James Varga:

Probably not. Right? I mean, there's, there's not enough substance in it, not enough value in it to really make a big business decision like giving somebody a, a mortgage or a loan or something like that. Financial data I think strikes a bit of a balance and that whether you're just using the basic components of that, which can be as simple as a knowing someone's account number, sort code to make a payment or it's a abstracted data like looking at someone's cashflow. Cashflow can be incredibly powerful in understanding someone's financial behavior without actually sharing any personal data. You know, you can see that someone's got an income that they spend, they're consistent, you can see how quickly they go into their overdraft or how many, how many days a month they're in their, their overdraft. You can essentially identify whether someone's financially distressed or they're able to manage their money, they're consistent in their spend.

James Varga:

All of that comes through in a cash flow, but there's no personal data, you know, so actually you can share bits of your financial profile that have absolutely no personal data and still have a huge impact into into that decision process. At the same time, you can go that next layer deep and go, does someone gamble? Are they asking for a loan? Because they do have a gambling problem, which comes back to the vulnerability angles and, and concerns the industry is talking about a lot right now. Um, the affordability, you know, holistically the credit risk and all its different components, the fraud prevention, all of that can be addressed using that bank statement data. But you can start at a very high level and work down. Financial data has that benefit.

Harry Hughes:

Yeah. And it's ongoing as well, isn't it, in terms of the product journey. So, you know, we do quite a lot of work with sort of business lending. Um, and as you said, it's a clear case from the first stages. So from the underwriting, but it's actually that monitoring and be able to understand over a long, you know, five, 10 year term, um, or agreement with baseness what's happening and being able to pick up quickly when there's a change in there is potential triggers.

James Varga:

Well, and this is where it comes to the opportunities around open banking are, uh, again we've been working with a long enough, I think we, we associate with a lot of different value points, you know, from, from the, you know, quick onboarding process through to the ongoing credit risk assessment, either for that individual, maybe it's a line of credit or more of a package leasing on 20, you know, 20 bits of farm machinery or something like that, right.

James Varga:

All the way through to the collections or recoveries process. Just because someone lose their job doesn't mean they're going to get not get another job, you know? And is this, how do you manage that whole life cycle of that uh, can be pretty powerful and, and even more and more now, how can the business leverage that ongoing access to data to manage their portfolio risk? You know, which groups of customers are or less risk than others and how to then feed that back into the process all the way up to what if a big bank could reduce its capital adequacy requirements. You know, what, if a lender or regulated firm could free up more money, which could, can then invest back into the consumers, you know, it doesn't all have to go back on the balance sheet. What if some of that could be invested back into those, those experiences and helping the individuals?

James Varga:

Collections recovery is a great example, you know, and, and there's some, some great projects out there right now and, and using open banking that, you know, is really just around understanding the personal situation of, of the consumer or the business, the SME, whoever it is, uh, as a way of managing through that process, that sensitive time of, you know, I can't afford to make these payments. You know, right now we end up being very reactive as an industry. You know, we let that go into collections recoveries become delinquent. We sell off that loan to some collections recovery firm and hope to get 30 P on the pound are or whatever back from it. I don't think we should ever even get to that point. You know, if you're, if I'm sharing my financial profile with you, you'll see that I can't afford it at the same time as I see that I can't afford it and what if we can work together to manage through that situation so that I don't get in that bad situation. You know, and I don't, I don't get a bad credit score or you don't have to send, sell off that, that, that loan book to, to somebody else to try and collect the money from me. You know, we can be proactive with it. Yeah. Yeah.

Harry Hughes:

Thank you James. I think that could be a good time to um, to cut this second episode short, um, otherwise, I'll be keeping your time for very few hours today. Um, I'm really interested in doing this. Again, I think there may be, if we look at sort of the tail end of the product journey next time, that could work really well given the points that you raised.

James Varga:

Absolutely. Thanks for, thanks for having me. It's just great to be here talking about open banking, talking about how, you know, we're on the precipice of a, of a fundamental change in the market, that that is a bit of a journey that we all have to go through. It's not just one sided, it's, it's, you know, it's, it's all about the adoption across the board from the consumer to the small to the big companies. And it's just great to be able to kind of talk through some of the, the issues that, that people might be concerned about. Or don't quite, uh, have in their head yet. So fantastic.

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So that's the end of part two of The Future Of lending podcast. We hope you enjoyed it and we look forward to bringing you some more content shortly.