Who owns which data?
Banks and fintechs aren't going to find the optimal answer in their war over our turf
When the government first consulted on open banking, which is a buzz word for assigning data ownership rights in financial services, I was readying myself for a public debate about who owns the data. Is it the banks, who generate and secure the data before showing it to their customers? Or is it Canadians, whose banks are neutral vaults in which data are stored for temporary safekeeping? I thought it the most crucial question. Ownership entails control. And control of data sharing is what open banking is supposed to delegate.
The public debate never came. In public, banks never put up a fight. Of course, their customers owned the data. At the same time, the Department of Finance implied the matter already settled. As the federal government said, open banking “can empower consumers to leverage their own data to receive more tailored services.” Consider the choice of words: “their own data.” The grammar all but legislates the right of ownership. Meanwhile, fintechs nodded along. So-called industry experts also agreed before advertising their consultancy services.
But banks and fintechs and policymakers and consultants don’t agree. Some of them think less data shareable by Canadians is better, others think the inverse, and there are those who prefer to stay agnostic. Insiders know the debate is happening, but it’s happening in backrooms, behind closed doors, hidden from the broader public—which is ironic because the subject of debate is assigning data ownership rights to the broader public.
In the spirit of transparency, here are some facts you’re not getting because this town rewards cheerleading more than dispassionate inquiry.
“Your” data isn’t yours
The financial data in your online banking portal aren’t like the other things you own. You and your bank co-create the data whenever you use financial services. Your bank is like an artist, drawing and presenting portraits of your financial life each time you log in to your online banking portal. Banks are using their canvasses. Their brushes. Their paints. Meanwhile, you’re posing. Banks are using your likeness as inputs in the production of financial services.
Ownership equates to a bundle of rights. These include the right to exclude someone from using what you own, as well as the right to license others to use what you own. In practice, you can’t do any of these things with co-created financial data because your bank won’t let you. Banks have assumed ownership because the outputs of their artistry are in their hands. You’re just looking at a portrait of your financial life from a distance. You don’t own “your” data. Your bank does.
While banks have assumed ownership, it’s possible that banks have assumed too much. You may deserve more ownership than you have. Co-creation implies intersecting interests, which need to be balanced.
Dividing ownership among co-creators of data is hard because the scales of justice are clunky. Our legal paradigm isn’t up to the task. And the federal government’s foray into data ownership rights will run into intractable problems. When the interests go beyond you and your bank, figuring out who owns what gets even harder. Imagine the transaction data that are generated when I buy something from a merchant with my credit card. The data are co-created by my bank, the merchant’s bank, the credit card network, me, and any payment processors in between. If you assume away everyone except me and my merchant, it’s hard to decipher which aspects of our transaction are mine and which are theirs. Maybe the merchant wants to share the data, but I want my privacy. Or maybe I want to share the data, but the merchant wants theirs.
It’s not easy to argue that anyone in the financial services ecosystem owns co-created financial data in full—even by appealing to the principle of privacy. One way to think of open banking is as an assignment of property rights. It’s not easy to make arguments for assigning property rights, either.
An appeal to social harm, backed as much by social science as moralistic table-pounding, is a better premise to start from. It’s true that banks assumed ownership rights of co-created financial data because there was nothing to stop them. They came, they saw, they conquered. But ownership rights ought to be reassigned when the market’s assignment is more socially harmful than the government-imposed alternative.
Social harm answers some questions, obfuscates others
The social harm that is most likely a problem in financial services is the inverse of the tragedy of the commons. According to the tragedy of the commons, when no one owns anything, everyone gets nothing because people overuse resources in a race to depletion.
Here’s the inverse: instead of every person in the economy owning nothing, imagine one person in the economy owning everything. Suppose I owned all the energy deposits in the world, for example, and I tapped only one to keep myself alive so that I could admire nature running its course on the rest. Perhaps I’m a utility monster for unkempt nature. Though admiring unkempt nature is great for me, it’s impoverishing for everyone else who needs energy to build their economy.
Some people believe co-created financial data are like untapped energy deposits. With economic theory, you can show it’s rational for firms to hoard data when they fear the threat of competition. Because data is the new oil, the economy can’t run on all cylinders when data are hoarded and underused. This deprives society of having more things, cheaper things, better things, and greater innovation in the long run.
Still, you can make data too accessible. With economic theory, you can also show sharing co-created data increases social harm. Co-created data reveal things about all the co-creators. When one of them has ownership and shares the data, the others’ privacy is compromised. Economists call this an externality. Data go from being untapped energy deposits holding back economic growth to over-tapped energy deposits that pollute the environment.
The economics of data is a new and growing literature, but there are early lessons for open banking. For data co-created by just you and your bank, more data sharing is probably better than less. Anecdotally, we see innovation where data are widely shared. Would we have even gotten Uber if Google were unwilling to share your locational data and its Maps data? For data with more co-creators, it’s less clear. Whether more sharing is better than less depends on the strength of people’s privacy preferences.
Banks and fintechs can’t wage war over other peoples’ turf
Some bank executives say open banking is a solution in search of a problem. When they hear fintechs bemoan the state of innovation in banking, I suspect they feel as if the money they’re spending to use data and enhance their offerings is being ignored. Big banks may not be as experimental as some fintechs, but they do what most Canadians ultimately want them to do: keep money and personal information safe.
Some fintech executives say the opposite. Banks are slow to innovate. Out of heavy regulation grows a compliance-heavy culture that’s averse to experimentation. Customers want better offerings and they’re not getting them, which is why they’re giving up their online-banking credentials. It’s revealed preference.
What do people other than bank and fintech executives say? Small businesses say little because they know neither what open banking is nor what open banking will do for them. Consumers say the same in bolder words. Consumers could “be winners or losers from any push to open access to their transaction information,” said one consumer advocacy group, before adding that the “public consultation was largely dominated by those who stand to make money from knowing what’s in consumers’ wallets and what they spend it on.”
This last fact is the most important one because consumers and businesses co-create the data whose ownership banks and fintechs are debating. How can you figure out the social harm of the status quo and compare it to the social harm of where you want to go if you don’t understand the preferences of all the co-creators? If the new and growing literature on the economics of data tells us anything so far, it’s that you can’t.
Some people lament the slow pace of progress on open banking. But I lament the cheerleaders who ignore complexity and try to ram decisions through a political and policymaking process that’s smarter than they think.
If you found this interesting, please like it, share it, or let our community of readers know what you think in the comments.