Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Open data for finance as an emerging source of GDP growth
OECD The Forum Network | Olivia White | Aug 10, 2021
Even before the COVID-19 crisis, policy makers in the OECD and beyond were identifying the potential for innovation and productivity growth that could be derived from building out digital financial infrastructure including greater sharing of financial data. This focus has helped give rise to the Open Banking Implementation Entity in the United Kingdom, the European Union’s second payment services directive, and broad discussion in the United States around a consumer-authorized data-sharing market, among other initiatives.
To what extent could open-data ecosystems for finance go beyond greater convenience and easier interactions between financial providers and their customers?
Our research suggests that the upside in terms of generating GDP growth is considerable. At the same time, we find that the size of that GDP lift, and how the economic value can be shared among the various market participants, depend in large part on the design and working of each ecosystem, and in particular the degree to which data are standardized and how broadly they are shared.
In our recently published study, we focused on four regions—the European Union, India, the United Kingdom, and the United States—and identified seven mechanisms for value creation from the adoption of open-data for finance.
See: Open Finance data adoption varies by country (but one thing is certain)
For consumers, these ecosystems can increase access to financial services, including for individuals and small businesses who might otherwise be shut out for lack of credit history. They can also improve user convenience, including with potentially substantial time savings from less routine form-filling, among others, and provide a much larger range of financial product options.
For financial providers, the value-creating mechanisms we identified include increased operational efficiency arising from more efficient data management, along with stronger fraud prevention, improved workforce allocation, and reduced friction from data intermediation, given the reduced need to pull in data from third-party providers.
We sized 24 use cases across these seven mechanisms. Extrapolating to a country or regional level, our analysis suggests that the boost to the economy from broad adoption of open-data ecosystems could range from about 1 to 1.5 percent of GDP in 2030 in the European Union, the United Kingdom, and the United States, to as much as 4 to 5 percent in India. All market participants benefit, be they institutions or consumers—either individuals or micro-, small-, and medium-sized enterprises (MSMEs)—albeit to varying degrees.
Only a fraction of that potential value is being accessed currently
- We estimate the UK has accessed about 30 to 40 percent of the potential value
- European Union and the United States are at about 10 percent of the potential
- India, which has been building out its digital financial infrastructure on the back of its Aadhaar digital identification system, has managed to access about 60 percent of the value of open data for finance to date
See: Minister Freeland releases final report with 34 recommendations on Open Banking from the Advisory committee
Capturing more of the potential value will require a greater degree of data standardization and broader data sharing. For now, both are quite varied across the four regions we examined.
Key takeways from our research include the critical importance of establishing trust in the system, along with the infrastructure to support it. Financial data are particularly sensitive, and users are more likely to want to share data if they know what they are sharing and why that sharing is valuable to them.
Digital infrastructure is also a must, and ecosystems with high-assurance digital ID have an advantage in being able to control use of data and reduce friction in managing online accounts.
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