AFM: Corona crisis reinforces trends and risks for financial sector

The AFM regularly bringsTrend views"out. So too in the last November's edition. A number of parts of the Trend View are relevant for the Don't-PSD2-me project. In the text there are some phrases bold made.

 'Hunting for personal financial data introduces new supervisory issues'

More and more companies are looking for access to personal financial data. This is not only facilitated by technological developments, European legislation also encourages this. New market structures are emerging, with fintech companies and tech giants entering the field of financial services. Although this stimulates innovation and competition and can therefore be to the advantage of consumers, it also creates new risks. Some innovations undermine the customer's interests. And new supervisory issues are emerging, such as more complex IT risks, the need to work better with data supervisors and the reliance on tech giants.

Big Tech's competition relies primarily on data capitalisation.

The far-reaching opening up of financial data to third parties, driven by Payment Services Directive II (PSDII), has meant that data is no longer reserved for a single company in a specific sector. This makes it possible to collect new data in order to obtain an even more detailed picture of individuals or certain groups. Competition in the digital economy is thus increasingly becoming a competition between ecosystems, in this case between the traditional financial system and the (big)tech system that runs primarily on data capitalisation.

Consumer can benefit, but data can also turn against consumer

Consumers leave a trail of data in the digital world that the financial sector can respond to. Players both outside and within the financial ecosystem gather various insights about the consumer, such as: the wishes and needs, the consumer's willingness to pay for the product, the financial position and the risk profile. Transaction data and other financial data are highly sought after, because they can be used to map and possibly predict behavioural patterns.

The consumer can benefit from this by being served better and possibly more personally. One example is banking and insurance products where the risk of lending to a consumer is better understood and therefore more accurately priced, which can lead to more adequate credit conditions for customers. Another example is the pricing of financial products. With the increasing availability of detailed data on customers and their behaviour, companies now have the opportunity to price more accurately.

Insights from the data can also turn against the consumer. The optimisation of risk estimates can, in extreme cases, lead to the uninsurability of certain groups. And although digitisation can help make services more accessible and transparent, digitisation can also help to disguise certain negative aspects of a product. Providers can also find new ways to exploit human biases through technology, such as the limited attention span. Parties can respond to this in, for example, the sale of a consumer credit. And price optimisation also goes hand in hand with perverse incentives. Think of determining the maximum willingness of consumers to pay, which leads to a disproportionate price with respect to the purchased product.

...for better or for worse...

Market parties can use the data that the consumer leaves behind, for better or worse. Increased data use can bring benefits to consumers, but the same data can also be used against his or her interests. Examples include personalized pricing of products, aggressive targeting of target groups and other abuse of human biases based on large datasets. Although these themes are not new, they can be implemented more ingeniously in a digitizing world. This can make it more difficult for consumers and regulators to recognise them. The AFM monitors developments closely and also seeks dialogue with the market on how to ensure that these techniques are used in the interests of consumers.