Data is being used to improve all aspects of a consumer's life in our increasingly digital world. eCommerce companies use data for a number of purposes, such as to personalize the experience of users across mobile apps and the web, suggest purchases and make it easier to find high-intent products. Retail stores use location data to drive consumers to local stores and restaurants and is even used in the store to better design its layout and available inventory. With the emergence of consumer-permissioned data in the financial services ecosystem we are beginning to see similar impact.
Consumers’ ability to access and control their financial data is providing them with greater utility and benefit than ever before. Along with this comes expectations of better experiences, on-demand access and deeper insights. The good news is that consumer-permissioned data is providing the industry a platform for further innovation. Even now, at the tap of their phone, consumers can use their data to get a real-time view of their budget, apply for a mortgage, and now have the opportunity to impact their credit score if certain criteria are met. Simply put, consumers are more empowered.
One of the most notable industry shifts is the consumer's ability to contribute their bank data in the credit scoring process. This is a seismic shift in the system. Historically, banks and lenders were the primary credit reporting institutions, now consumers are being brought into the process. This is a win / win for consumers and lenders. Consumers can now permission their demand deposit account (DDA) data for inclusion into the UltraFICOTMScore. This development empowers consumers and enables added transparency, while providing lenders more data and a broader view of the applicant’s financial profile to assess credit readiness.
This unprecedented data access and insight is made possible through connections to financial institutions that provide secure, simple data sharing for use in countless financial applications and products. With this data, which hadn’t been easily available, applications are innovating with new forms of analysis and insight, while financial services embrace new models for greater accuracy.
Key to consumers and financial services providers alike is data security. Throughout the data permissioning and sharing process data needs to be secure, from data entry to data transmission to data at rest. This has been a priority for all participants in the process. As a result, the data is encrypted at all times and regular security audits are conducted. But one of the most interesting developments in the industry is the establishment of the Financial Data Exchange (FDX). FDX represents a broad cross section of the financial services ecosystem – financial institutions, fintechs, data access companies, and other interested parties, all working together to establish a common, interoperable standard for secure sharing of financial data. Finicity played a central role in the creation of FDX and is a committed member to a consumer-centric standard that protects both the data and the account owner. FICO has also joined this initiative and supports the organization’s common goals.
The FDX standard, formerly the Durable Data API standard, is a data sharing standard designed to ensure access to data is secure and that consumer information within the process is limited. Furthermore, there is an expectation that providing a common standard for data sharing will usher in an era of innovation akin to the explosion of solutions that came about with the introduction of the Bluetooth standard for close range connectivity. A data sharing standard can foster an environment that further empowers consumers to access data across financial account types, and use that data to better manage their finances and improve their financial lives.
This is a vital step in the evolution of consumer-permissioned data. As financial institutions and fintech companies have an interoperable, open standard, they’ll both be able to focus on using data as efficiently and effectively as possible. This open ecosystem would provide the opportunity for a holistic view of personal financial data which would lead to improved financial wellness and on-demand insights for smarter financial decisions.
Utilizing personal financial data effectively is one of the best ways to improve the customer experience. Consumers are demanding more benefits and simpler interactions with their financial services and they’re willing to move based on digital experience alone.
To meet consumer demand and increase brand loyalty, financial institutions and lenders are creating experiences to rival the ease and simplicity of using a phone for takeout, transportation, shopping or travel. And they’re making better use of consumer data in order to do it.
This will also create a balancing act. Financial institutions will have to balance being the caretakers and custodians of consumer’s data while offering simplified experiences and driving innovation. Protecting consumer privacy and financial data is paramount to fostering trust in the products and processes that require data in return for the benefits of that data.
Security and data sharing standards provide an opportunity for a more collaborative environment that can enable the promised benefits to a consumer while protecting their privacy and financial data.
The UltraFICOTM Score is a good example of securely using consumer-permissioned data to enhance products and processes that already exist in the market. By using permissioned data commonly found in consumer bank accounts, the UltraFICOTMScore takes into account new facets of a consumer’s past financial behavior to augment a consumer’s credit history currently shown in their traditional credit file. In a majority of cases, consumers can see a higher UltraFICOTMScore than their traditional FICO® Score as a result of additional information incorporated into the score model that wasn’t previously considered in the scoring process.
As a result, consumers are empowered to contribute their data to potentially increase their credit score, which provides the opportunity for better access to financial products at lower interest rates and better terms.
Consumer-permissioned data has only begun to empower consumers and create new financial products, enhance existing processes, and provide rich customer experiences across the financial services ecosystem.
The blog is written by guest author, Nick Thomas, President, CTO and Co-founder of Finicity.
Finicity’s mission is to help individuals, families and organizations make smarter financial decisions through safe and secure access to fast, high-quality data. The company, which launched its first financial product in 2000 and has since grown to provide financial data APIs, credit decisioning tools and financial wellness solutions, partners with influential financial institutions and disruptive fintech providers alike to give consumers a leg up in a complicated financial world. The company has developed more than 15,000 bank, wealth management and credit card integrations, giving it broad market coverage and utilizes advanced analytics and data intelligence to deliver rich financial insights. Finicity received recognition from American Banker in it’s Best Fintechs to Work For list, it was awarded API World’s 2016 Finance API of the Year and is a 2019 HousingWire Tech100 winner. To learn more or test drive its API, visit www.finicity.com.