The European Banking Authority published a discussion paper on innovative uses of consumer data by financial institutions. The focus of the paper is the risks and benefits to consumers and financial institutions arising from the use of commercially available data. Recent innovations include financial institutions combining consumer data they hold internally with data sourced externally from private and public companies and social media.  Financial institutions are able to use consumer data, such as buyer behavior, to provide incentives such as shopping discounts to increase consumer consumption of financial services.  Benefits for consumers of such innovative usage may include cost reductions and improved quality in products and services offered as financial institutions can more accurately cater to customer needs. Financial institutions can benefit through the creation of new sources of revenue, achieved through better product and service development and sharing consumer data with third parties. 

However, use of consumer data by financial institutions also poses risks to consumers. The use of consumer data may create an information asymmetry, especially where the consumer is unaware that a financial institution is utilizing their data. Furthermore, consumers may also experience breaches of privacy whilst being unaware that their information is being used by either financial institutions or third parties. There is also risk to financial institutions. For example, firms may be exposed to reputational risk if they make questionable decisions about consumers based on their data if the firm does not take into account enough data or do not use the data that they hold in the right way. Data security is also a major risk for financial institutions.  Risks can materialize where a firm’s IT system is hacked or accessed by a third party, which may result in litigation following unauthorised payment transactions or breach of privacy claims. The EBA is seeking feedback on whether identified innovative uses of consumer data are comprehensive, reflect current practices and whether the risks and potential benefits are correctly reflected. The EBA will assess responses and then decide what, if any, steps it should take. Responses to the discussion paper are due by August 4, 2016. 

View the EBA update and discussion paper.