A Consumer Data Right (CDR) is often touted as a good thing because it aims to benefit consumers and the economy by making it easier to shop around and switch providers, introduce efficiencies, and increase competition and innovation in the marketplace.
It all sounds great, but how does it work? Today, we’re sitting down with Jason to understand how things could change for the better and what the future could hold.
Hey Jason, thanks for taking the time to help us make sense of Consumer Data Rights! So, first up: What’s the big deal about data, anyway?
Jason: Hello, and you’re so welcome! Always happy to help.
Many of the services we use collect and store the data generated by our activity. These companies subsequently use this data to enhance their commercial insights and strategy.
This is often referred to as “big data” and is a key reason why some corporations know more about our behavior than we do. Large data holders also have a significant advantage over their competitors, stifling innovation and limiting consumers’ options for more suitable alternatives.
Oof, that sounds concerning. Can you explain to us what a Consumer Data Right is?
Jason: It is indeed concerning. That’s why, in my opinion, a CDR can’t come fast enough!
Okay, so let’s start at the beginning. A Consumer Data Right is a legal framework that gives consumers the ability to ask their providers to share their data with third parties.
It’s an exciting development because it promises to give consumers more control over our data, leading to an important shift in how we can realize value from that data.
Okay, that all makes sense so far. What does a CDR aim to fix?
Jason: A CDR aims to put some balance back into the economy, leveling the playing field across services by offering better transparency and letting consumers do more with their data.
The CDR will likely start with providers in the financial sector like banks and insurance companies, followed by utilities like power.
Let’s take online banking as an example. What you can do with your online banking data is limited to what the bank’s website and mobile apps can offer — most commonly, viewing your activity and doing your day-to-day banking.
A CDR gives you the universal ability to tell your bank to securely share your data with services you want to use that go beyond what your bank can offer. These could be apps that help you get better deals, speed up mortgage and loan applications, or get a clearer picture of your money so you can make better decisions.
Hang on, so, with a CDR, do we as consumers have the option to exercise our data rights?
Jason: Exactly. You don’t have to use the rights offered to you, but you have the option to do so. And that is important for a couple of reasons:
Firstly, we deserve to own our data. We can’t claim to own our data by default. What’s more accurate is that we get to see it because we use a provider’s services.
If you close your account at your bank, you don’t get to use their apps anymore and you lose your history. If you want it, you’ll probably have to go to the branch, provide ID, and pay for some printouts or for some files to be sent to you.
Secondly, getting access to the data can be prohibitive.
Most of us want clearer financial insights, so we’re more in control of our money, but getting the data in a meaningful format is a lot of work and a significant barrier that limits us and the people we want to work with, like advisors and family members. If you’re a PocketSmith user, you may be wondering what the fuss is about. You already connect to all your banks to access your financial data in one place, all your transactions are stored and easily accessible, and you can get a holistic view of your money.
It’s true, and we’ve been doing this for the last 13 years. We have users in over 100 countries who connect to over 14,000 banks worldwide, and we provide access to financial data that isn’t bound by banks, borders or currencies.
Achieving this is no mean feat, though. As a data recipient, the challenge we have is that there are no common standards for obtaining this data. So the process of getting data feeds from banks is complex, expensive and hard to maintain because it differs from bank to bank and country to country.
We need regulators to ensure that data holders — that is, financial providers like banks — provide a consistent, seamless and secure way for our mutual customers to be able to share their data, so we spend less time on managing data connections and more time on taking care of our customers and helping them be better with their money.
This brave new world sounds pretty exciting for consumers! How soon might we see the CDR in action in New Zealand?
Jason: It will be a while. We’re currently five years behind the UK which started work on Open Banking in 2016, and four years behind Australia, who introduced their CDR in 2017. It’s fair to say that consumers in both countries have yet to fully realize the benefits of the legislation because there’s a lot of work to be done.
When a CDR is legislated, providers are typically given a deadline to make that data available, and this is a complex process for big corporations like banks to implement. So to make it work, providers make consumer data available in increments by phasing it in. On the other side of the equation, third-party providers have to go through an accreditation process to earn the right to receive consumer data. This is also expensive and time-consuming. If we look at what’s happening over in Australia — it’s been four years, and it’s still being phased in. So while there’s excitement about a CDR being legislated possibly in 2022, a realistic view would put us in 2025 or later before we actually see data sharing in action under the CDR.
You’ve talked about the positives of the CDR. Let’s now talk about the risks involved in data sharing.
Jason: The status quo provides a degree of comfort in that we don’t have too many ways to get into trouble when it comes to protecting our data. We need to make sure our passwords are secure, and we have little worry about data breaches because our providers have walled gardens.
With a CDR, we’re proposing a future in which more of our information flows across a network of providers, which means a higher risk for our data and privacy to be compromised.
As such, we must have safeguards to protect consumers while at the same time offering the transparency and benefits we get from data-sharing.
This is why CDRs take a long time to be implemented. Our government, data holders and data recipients will all have to meet a high bar in ensuring that the systems for sharing data are robust and trustable.
Playing devil’s advocate here, why don’t we just stick with the status quo?
Jason: We did a great job with our payments and banking systems in the early 90s, and it’s hard to rock the boat. New Zealand is a small market that is comfortable. Elsewhere in the world, consumers have demanded better alternatives for financial services such as payments, banking, comparison shopping, and money management — this has stimulated innovation in the financial sector.
We risk lagging behind because things are just good enough on our shores. If we continue to slowly expose ourselves to living with digital finance, we’re increasingly unprepared to deal with the big challenges that are now at our doorstep. As an example, we’re staring down the barrel of significant income inequality accelerated by COVID-19, and being given the rights to our data is an important tool in helping us balance this out.
More and more of us will be priced out of the housing market, and we have to think of alternative ways of saving for retirement and securing our futures. We need better control over how we spend, save and invest.
Furthermore, it’s no secret that we as Kiwis have not benefited from good financial education growing up. We need better transparency, insights and guidance on our finances to make better decisions about our money.
So these situations are compounded by the lack of education, lack of access to data, and a lack of options. While a CDR isn’t a fix-all, it will help our people navigate what is a new financial reality for Kiwis.
Let’s talk about next steps. How can we as consumers be better prepared for a CDR?
Jason: If you’ve read this far, you’re most likely the household CFO. You’re planning ahead for how money is spent and setting a budget and strategy for your household. You’ll be keeping tabs on the money that is coming and going, and looking to better communicate the financial situation to people you care about.
The best thing you can do is to be curious. Think about how your financial life could be improved. Ask questions, push some boundaries, and challenge the status quo. We, along with many other innovators, are listening, and it won’t be long before we’ll be able to deliver a brighter future for us all.
Thank you so much, Jason! We love that you’re a tech optimist and are super appreciative of your time today :)
Jason: Not a worry!
If this interview has piqued your interest in the future of consumer rights and privacy law, read PocketSmith’s full submission on the NZ Government’s discussion document, Options for establishing a consumer data right in New Zealand.