Open finance gives low-income consumers greater control of their personal information, helping make their data work for them, giving them access to more products at lower costs through multiple and easy-to-access channels, and allowing for remote consumer onboarding. Under open finance, with consent from the customer, banks and financial service providers (FSPs) would be required to share consumer data with other FSPs and/or third-party providers, such as fintechs. However, this unprecedented ability to move entire financial histories both empowers consumers and poses risks. For example, data users might pass on data to another party without consumers having much control over it or assurance that it will be used in their interest. Also, in the wrong hands, data could be used to commit fraud or cause other harm, undermining consumers’ trust in open finance and leading to low adoption. It is therefore important to create a legal framework that facilitates the sharing of customer data while also protecting it. This CGAP technical note highlights the basic data protection provisions that should be in place for an open finance regime, as well as how they can be addressed through law and regulation.
Do poor customers value data privacy? Six experiments in India and Kenya indicated they do and are willing to pay for it. For providers, this suggests that offering products with privacy and protection features can give them a competitive market edge.
For digital financial services providers looking for a competitive edge in developing economies, better data privacy features could be the answer, according to CGAP research from India and Kenya.
Research in Kenya shows that low-income borrowers value data privacy so much that most are willing to pay higher interest rates for better privacy protections, even during the COVID-19 pandemic.
Data sharing can unlock a number of opportunities for the financial inclusion of poor individuals in EMDEs. To understand how, we must look at the various models of data sharing and how they may result in an inclusive data ecosystem.
While many regulators in emerging and developing markets understand the potential benefits of open banking regimes, they are uncertain how to design them in ways that support financial inclusion. CGAP has identified 12 critical design components.