In a new video, a digitized, falsified Mark Zuckerberg says that, “Whoever controls the data controls the future.” This might be just a bit grandiose, but it could well be that whoever owns the data at least will own the financial-services customer. If I grant a financial company the privilege of marketing me or – even better from my point of view – get paid to let a hopeful provider take a peek at my data to craft a product just for me, then credit scores and all the on-high arbiters of credit availability, deposit pricing, insurance underwriting, and securities brokerage are turned on their head. Instead of the bank owning me, once I have my data, I own the bank.
In an interesting example of bipartisan socialism, Republicans and Democrats are increasingly of one mind: consumers should own their own financial data. Indeed, as our analysis of Senate Banking’s hearing earlier this week noted, senators are inclined not only to give consumers data-ownership rights, but also to force firms that want these data to pay handsomely for the privilege. A transformation of data-ownership rights, let alone a monetization of them, is a paradigm shift for retail banking, securities, and insurance.
First, it makes the most empowered consumers the most difficult to entice, upsetting the cross-subsidization model on which much financial-industry pricing is premised. Information asymmetry has long made vulnerable consumers easy prey, and it’s likely that, at least at the start of a data-ownership regime, these consumers will be the least protective of their financial-data ownership power. This might make financial institutions more willing to offer services since consumers who don’t exercise rights or force companies to pay for them will constitute a new lowest-common denominator retail market. However, I suspect that expanded financial inclusion will not be the happy result of a search for consumers who don’t know how valuable their own data might be. Instead, in the presence of higher-profit consumers demanding data rights, vulnerable households could be even larger sitting ducks because the cost of doing business with them goes up in the absence of low-risk customers.
Is this a social-policy rationale to prevent data ownership and/or monetization? Certainly not. To do so would be to demand that no one gets a mortgage because some consumers are suckered into predatory ones. Rather, it is to warn that the information asymmetry that already characterizes problematic financial practice will be a still greater divide if complex or even costly ownership rights factor into which products are offered to whom at what cost.
Another critical question is legacy data. Right now, legacy firms – i.e., non-fintech or non-platform financial companies – own troves of data many of them still can’t find or model to maximum advantage. If consumers own their data and demand rights over it or even payment for it, legacy companies could be left by the side of the road just as buggies were left behind when roadsters first hit the market. Legacy banks, brokers, and insurers could thus be still more quickly confined to costly infrastructure functions while more nimble companies cherry-pick the higher-margin products enabled by consumer-data transfers.
Another critical challenge will be data integrity. What happens if a consumer who claims ownership rights loses his or her data? Could it be not just lost, but also falsified somewhere along the way from a financial provider, the consumer, and a new provider? What becomes of credit scores when only the data an informed consumer agrees to share is on offer? Adverse selection is sure to follow, as I said, but what becomes of still more fundamental underwriting and advisory assumptions?
One solution to the data-integrity problem is the creation of new consumer-data custodians. Custodial financial institutions are of course a fixture of the asset-management industry, but I suspect that they would quickly become the mainstay of a newly-designed retail-finance marketplace. It might well be different companies that become data custodians doing very different things with data than aggregators now purport to provide, but they could quickly become new financial-market utilities just as essential to consumer finance as custody banks are to global capital markets.
Given all these concerns, is consumer data ownership a dangerous idea? The lords of the manor surely thought it was hazardous and then some when serfs acquired property rights or share-croppers demanded a say in their destiny. Serfs and share-croppers begged to differ and so too will consumers if financial companies counter ownership demands with promises of noblesse oblige. Understanding who wants what, which companies win or lose, and how much this all might cost is thus a critical and imminent franchise-value proposition for any retail financial provider still treading gingerly into the newly digitalized age.