In today's digital world, financial institutions, credit agencies and tech giants alike collect vast amounts of our personal financial information - from income and employment, spending habits to loan details. But who actually controls this sensitive data? In many cases, it's not individuals. This article explores the current landscape, risks, and innovations that could put people back in the driver's seat of their own financial data.
The Current State of Financial Data
Despite holding intimate details on our financial lives, banks and financial services companies essentially treat customer data as their own asset. Depending on terms and conditions, they can share, analyze, and monetize information. Likewise, tech firms mine our data for profit.
A study by Deloitte's 2021 Financial Services Outlook found only 9% of consumers feel they have complete control over their personal data. The result is an opaque system where we have little visibility or consent into how our financial information is used.
Problems and Risks
The imbalance of data control carries significant risks for consumers:
Identity theft affected over 15 million Americans last year, resulting in $16.9 billion stolen (Javelin Research). Our sensitive financial information is a prime target.
A study by the National Bureau of Economic Research found biased or inaccurate AI algorithms trained on our data can deny individuals loans, housing, and other needs. Yet the ratings processes remain secretive.
Constant data breaches show that even big financial institutions lack the cybersecurity to adequately protect our information. One of the biggest, JPMorgan suffered one of the largest bank breaches in history in 2014, resulting in over 83 million customer records compromised.
Legally, terms and conditions largely absolve companies of responsibility for mismanaging or misusing our data. Users have painfully few rights or recourse. For example, Bank of America's 66-page Privacy Policy states they can share and use data with "affiliates, merchants, business partners" and third parties "without your consent" for ambiguous "business purposes" with minimal liability.
Without ownership of our data, we also miss out on the potential value and utility it can provide in our lives when used ethically.
Regulation Is Evolving
In the US, there are emerging laws and regulations in the United States aimed at giving individuals more control and rights over their personal data:
California Consumer Privacy Act (CCPA) - Gives California residents new data privacy rights including access, deletion, and opting out of sale/sharing. Widely seen as a model for other states.
Consumer Financial Protection Bureau (CFPB) - Has been actively engaged in driving adoption of open banking to benefit consumers. The CFPB has advocated for consumer-authorized financial data sharing.
Federal Privacy Legislation - While failed so far, continued efforts in Congress to pass a comprehensive federal privacy law setting nationwide data rights.
FTC Privacy Rules - The Federal Trade Commission is authorized to issue privacy regulations around unfair/deceptive practices impacting consumers.
Data Ownership Solutions
Thankfully, a wave of innovations aims to flip the status quo towards individual data empowerment:
Digital wallets like YourOwn, consolidate financial information in one secure place. Enabled by HD wallet and public and private key encryption architecture, they put users in control.
Emerging open banking standards and APIs also hold promise to give individuals more control. Initiatives like FDX build open source HTTP-based APIs that allow users to permission their bank accounts for secure third party applications. Open banking frameworks like those in the EU mandate banks open up customer data via APIs.
Advanced encrypted analytics techniques such as homomorphic encryption, zero knowledge proofs, and multi-party computation allow useful insights from data without exposing it.
Open standards like W3C Verifiable Credentials will let us permission and securely share our financial credentials, rather than actual raw data.
Blockchain-based digital identity systems provide self-sovereign ID management anchored on the blockchain for security.
Though adoption is still emerging, the building blocks now exist to give individuals true self-sovereignty over their financial data. Just as open source revolutionized software, decentralized technology can transform finance into a more transparent, user-controlled ecosystem. Armed with our data, individuals can then better chart their own paths to financial freedom.
Empowering The Individual
Truly owning your own financial data empowers the individuals and expands opportunities. With control over our full financial profiles, we can quickly and securely apply for loans, services, and assistance tailored to our needs. Rather than relying on incomplete third party ratings, we share our complete financial picture on our terms. Financial institutions benefit from holistic insights to approve good-faith applicants who may have been overlooked. By putting people at the center of their own financial data, we open new pathways to credit, housing, education, and ultimately financial security.