Global menu

Our global pages

Close

Smart data: unlocking innovation and putting customers in control

  • Europe
  • United Kingdom
  • Competition, EU and Trade
  • Privacy, data protection and cybersecurity

06-01-2021

In part two of our series, "The Interplay between Data and Competition Law", we provide a summary of, and comment on, the steps being taken by both the UK and the European Union as a whole in order to encourage the use of Smart Data; namely, the UK government’s response to its Smart Data Review Consultation and the European Commission’s adoption of an EU Digital Finance Package.

Smart Data Review

Smart Data – although not a new phenomenon – is set to radically improve the way customers manage their products and services. With the ever-increasing availability of different service options, modern day consumers face the complex task of navigating the market to find the best deals; a difficult and time-consuming task. This has led to both a ‘loyalty penny’ and low customer satisfaction in regulated services.

However, as a result of the UK government’s plans to drive the use of Smart Data, such issues could soon be a thing of the past. For those who are unfamiliar with Smart Data, this is the secure and consented sharing of customer data with authorised third-party providers. Providers then use this data to provide intuitive services to consumers and businesses, such as automatic switching and account management. This in turn empowers consumers to make informed choices about the products and services they invest in.

Following its Smart Data Review consultation of July 2019, in which it consulted on expanding Smart Data beyond banking, the Department for Business, Energy and Industrial Strategy (“BEIS”) announced the government’s intent to introduce new Smart Data laws which will enhance the security of data portability to service providers and put consumers in control. This will allow for and accelerate the development of new innovative services, giving consumers and SMEs the opportunity to benefit from better deals and savings.

In the foreword of the response, Paul Scully MP highlighted that the process of customers gaining better deals or obtaining and using their own data is in need of simplification, which the Smart Data framework would facilitate. In turn, this will drive innovation – the foreword states that “the biggest inhibitor to these innovations is not technology, but the lack of a framework to securely access, use and share data’”. Services which utilise Smart Data will save customers time, money and effort – it will allow them to easily and efficiently find and choose deals that are better suited to them. The response highlights the shocking statistic that ‘disengaged’ consumers are at present paying an estimated £4 billion a year more than they would be on equivalent deals; a clear indicator of the importance of and need for data-driven innovation.

Smart Data is already a firmly established mechanism within the finance sector – dubbed ‘Open Banking’ – and is currently utilised by over 250 companies which provide innovative services to over 1 million consumers and SMES. Services provided under this framework include budgeting to invoicing, as well as allowing users to view several bank accounts in a single app, making it easier for them to manage their accounts. Notably, Open Banking has facilitated successful start-ups such as:

  • Moneybox, who help over 500,000 people save and invest for their future. The company has developed an app which rounds up users’ everyday purchases to the nearest pound, and puts the spare change into a savings or investment product.
  • Xero, whose online accounting software streamlines invoicing, payroll & expensing for over 600,000 UK SMEs.

This clearly demonstrates the value that can be unleashed through facilitating secure and regulated data portability. Although data portability initiatives are starting to develop in other sectors (such as pensions, energy and telecoms), progress falls far behind banking.

Respondents to the consultation were in favour of the extension of Smart Data to allow customers to access help in using their data in a more simple and secure manner, acknowledging the significant benefits it could bring. BEIS states that next steps will include:

  • introducing primary legislation which will define what is meant by Smart Data initiatives (including types of data that should be shared and how this is to be done) and empower the government to mandate participation in Smart Data initiatives. BEIS have published an impact assessment in respect of this, to which feedback is welcome
  • the launch of a cross-sectoral Smart Data working group to coordinate initiatives

The proposed Smart Data laws will enable businesses to provide consumers with valuable and efficient services such as improved account and bill management, switching services for savings, and targeted support for vulnerable consumers.

New EU Digital Finance Package

It is important to note that it is not just the UK that is seeking to embrace the digital transition and modernise the economy to improve consumer experience; the European Commission has also recently taken steps in the same direction through its adoption of an EU Digital Finance Package on 24 September 2020. The package builds on the theme of promoting open data and innovation to improve access to financial services and increase competition.

The EU Digital Finance Package includes a digital finance strategy, as well as legislative proposals which aim to make innovative financial products more accessible to consumers, whilst also protecting consumers and ensuring financial stability. The strategy has four key aims:

  • removing fragmentation in the Digital Single Market, allowing consumers to access financial products across borders and enabling the growth of Fintech start-ups
  • adapting the EU regulatory framework so that it is fit for the digital age and provides for modern technologies such as artificial intelligence and blockchain. This in turn should facilitate digital innovation
  • promoting data driven finance and open data to promote competition in digital finance services
  • addressing the challenges and risks with digital transformation

In particular, the Open Banking sector is called out as a leading example of data driven innovation in relation to open data in the field of Smart Data.

A level playing field

It is key to observe that agendas such as those described above are driven largely by competition law; they aim to force those with dominant positions in the market, or who have arrangements which exert disproportionate control over certain data sets in selected key vertical markets, to open up certain data sets. This will, in turn, increase competition in the market.

Open Banking is a good example, which gained momentum following the enactment of the Payment Services Regulations (“PSRs”) (which transposed the EU’s Payment Services Directive 2 (“PSD2”) into UK law), and as a result of the Competition and Markets Authority’s (“CMA”) Retail Banking Market Investigation Order 2017 (“the Order”).[1] The Order mandated that CMA9 banks (the largest nine institutional banks in the UK) opened up their respective customer bank account data sets to promote, encourage and facilitate Open Banking. This paved the way for them, and importantly for smaller providers, to develop new cutting-edge services for their customers. Moving forward, this model will be implemented into other markets so as to foster innovation and create a more level playing field for developers and service providers. This is intended to promote competition within the relevant markets; in practice, this has experienced some challenges given:

  • the legacy systems of banks and the number of API calls mobile fintech apps need to make upon these legacy systems to ensure they have sufficiently up to date bank account data to run effectively;
  • the delay in some banks making account data readily available (as a result of their legacy systems and type of technology, staff, systems and resources that are customarily used to running larger ‘main frame’ systems as opposed to agile cloud and app based software applications);
  • the ambiguities around the technical standards to ensure consistency and ease of integration with fintech interfaces and applications; and
  • the need to approve, authenticate and verify the IDs of intermediaries and also individual customers themselves to maintain sufficient security standards and protocols before and whilst continuing to share customer account data.

Yet, despite these challenges, Open Banking has become a lighthouse of innovation in financial services and has demonstrated that increased competition and new services can be developed and implemented for customers.

What’s the latest?

The UK government recently launched its Call for Views on its draft National Data Strategy (“NDS”): the consultation closed on 9 December 2020 and sought input from all industry sectors on its suggested plan to develop an effective data strategy. This followed an earlier call for evidence in June 2019, following which the government published its NDS Framework. In the draft NDS, the government highlights, “The data market in the UK (i.e. money made from products or services derived from digitised data) is the largest in EuropeUK tech grew dramatically in 2019, with the UK securing 33% of European tech investment. Globally, the UK now sits behind only the US and China in terms of venture capital investment.” Exciting times lie ahead.

The NDS sets out its four core pillars: (1) data foundation; (2) data skills; (3) data availability; and (4) responsible data; and builds upon the Industrial Strategy, AI Review, AI Sector Deal and the Research & Development Roadmap.

The NDS also hopes to drive employment opportunities: “More widely, the European Data Portal predicts a baseline scenario of 1.12m open data employees and an optimistic scenario of 1.97m open data employees in the EU by 2025. And over 6% of new companies in the UK in 2019 were tech start-ups, with data and the aligned need for increasingly sophisticated data skills underpinning their business models.”

The insatiable appetite, and lust, for rich and open data continues.


[1] The Order was adopted following the CMA’s competition market investigation into retail banking. See: https://www.gov.uk/cma-cases/review-of-banking-for-small-and-medium-sized-businesses-smes-in-the-uk.