FIDA: background
FIDA (Financial Data Access) is a framework that intends to give consumers control over all their financial data in a broader sense than what is done within PSD2 and Open Banking. It promotes data availability and enables secure sharing with third-party services, such as fintech and insurtech companies, to improve financial products and foster innovation. So, what are the main issues today driving the need for change? The European Commission summarizes it in three main reasons:
- There is a lack of clear rules and tools for managing data-sharing permissions leading to low customer trust, making them hesitant to share data.
- Ambiguity or absence of rules means data holders (e.g. financial institutions and insurance companies) are not always obligated to grant access to data users, such as fintech firms.
- Data-sharing costs are high due to non-standardized data formats and infrastructure.
FIDA aims to provide control and financial insights for the consumer. While PSD2 and PSD3 only applies to payment accounts, FIDA will apply to most financial institutions and cover a much wider range of financial data.
To read more about the whole payments package being released by the European Commission, check out our white paper here.
In this article we will comment on the most substantial changes coming with this framework in comparison with open banking, introduced by PSD2, as well as the largest impacts with associated possibilities and challenges.
How does FIDA (open finance) differ from PSD2 (open banking)?
Data
While PSD2 & PSD3 only provides the possibility to access data related to payment accounts, FIDA will apply to most type of financial institutions and cover a much wider range of financial data, such as:
With this wider range of data being available for use, the possibilities for innovative solutions to give consumers an overview into their financial life are endless.
However, in contrast to PSD2 which includes both the account information services and the payment initiation services, FIDA only concerns financial information services and does not include any type of initiation services on behalf of consumers. In other words, the regulation only governs sharing of financial data, it is up to the data holders and data users to define what can be done with the information available.
Compensation
A significant difference between open banking rules defined by PSD2 and FIDA is that FIDA allows data holders to charge data users a reasonable fee for data sharing. Like for PSD2 this data is always to be free of charge for consumers.
Amount of compensation is limited by FIDA and need to be directly attributable to making the data available for the request, such as technical costs for transferring the data.
Self-regulating schemes
The European Commission leaves it to the market to design and set up schemes that will enforce standardisation and cohesion between participants. These schemes could be grouped by region, industry etc. where competent authorities will audit oversee the schemes.
If an institution is not part of a scheme 18 months after the launch of FIDA, competent authorities will assign the institution to an existing scheme it will be required to follow.
There has been no pre-study of how these schemes may develop the European Commission points to the SEPA Payment Account Access (SPAA) scheme as an example of what it could be.
Permission dashboards
With a wider range of data being shared, FIDA requires data holders to provide an interface for consumers to manage the consent for data usage to third parties. Consumers shall have an overview and both grant and withdraw consent in real-time.
These permission dashboards introduced by the financial data access and payments package may become one of the most extensive changes due to the technical and collaborative efforts required to set up and maintain consent sharing in real-time.
Key impacts of FIDA on Financial Services Industry
Potential innovation and competition
With FIDA there are endless opportunities to create new services and products, based on the new type of data and range of financial data available. Consumers can expect new and more personalized services and offerings of higher quality and more granularity than previously seen. Examples of areas that see large potential from FIDA include credit scoring tools, personalized and tailored financial advice.
FIDA also creates a more level playing field, as data becomes available for data users of different sizes, fostering healthy competition. Also, data transparency could make product and service comparisons more easily accessible potentially resulting in price adjustments and better insights for consumers.
Looking back at the expected innovation and competition with the introduction of PSD2 and open banking, the actual outcome has varied greatly. In some respects, we have seen a change in consumer behaviour as a result of new innovations within the payment industry related to payment initiation services, whereas account information services have not really lived up to the expected hype. Will the changes coming with FIDA create the needed transparency and quality to make the information services truly valuable and bring the financial industry into the open finance era?
Consumer data transparency and control
One of the main purposes of FIDA is to give consumers transparency and control over their own financial data. By giving consumers transparency to the data available as well as the right to manage who gets access to what and with what purpose, this could likely have a positive impact on the empowerment of consumers in an industry that for some may feel complex and rigid.
Also, there is a potential impact of increased trust that consumers feel towards data holders with clear rules and structure for data sharing. Consumers’ perception of data security and trust in a world where cyber security is becoming more and more pivotal, will likely make or break the potential success of new innovations.
Consumer data transparency and control
One of the main purposes of FIDA is to give consumers transparency and control over their own financial data. By giving consumers transparency to the data available as well as the right to manage who gets access to what and with what purpose, this could likely have a positive impact on the empowerment of consumers in an industry that for some may feel complex and rigid.
Also, there is a potential impact of increased trust that consumers feel towards data holders with clear rules and structure for data sharing. Consumers’ perception of data security and trust in a world where cyber security is becoming more and more pivotal, will likely make or break the potential success of new innovations.
Summarizing thoughts
There is no question that FIDA will have big impacts on the financial services industry and that one can expect great changes in data sharing activities and principles. However, from our perspective there are still a few areas with questions to be answered.
Firstly, looking at how this regulation is drafted there are still a lot of questions that need to be clarified in order for FIDA to be successfully implemented. Considering the, in some aspects, inadequate and uneven implementation of PSD2, the industry needs clarification and details in order for FIDA not to face the same pitfalls as PSD2. For instance, there is definitely a need for guidance on how the self-regulating schemes are to be set-up in order to ensure even conditions for all participants. How can the industry receive the needed guidance to ensure successful implementation of FIDA?
Additionally, as previously mentioned, the expectations for innovation were high with the implementation of PSD2 and the possibilities of open banking, expectations that weren’t necessarily met. The account information services haven’t had nearly the same impact on innovation in comparison with the payment initiation services, both introduced with PSD2. FIDA widens the data that can be shared between data holders and users, but will the actual width of financial information shared foster innovation or should FIDA be more actionable in practice to reach the expected innovation?
From a consumer perspective one key question to ensure the success of FIDA is the security aspect of it all. Considering the growing threats in cybersecurity especially within the financial services industry, the success of innovation through data sharing possibilities provided with FIDA are highly dependent on consumers’ perception of security. It will most likely be up to data holders and data users to promote this security, which in itself raises the question how this collaboration between different parties will work and whether it will take some time fore consumers to find these services trustworthy?
At 421 we’re excited about FIDA and its possibilities, and we’re eager to see the finalized version of the regulation once it will be released by the European Commission. What are your thoughts on the potential and challenges with FIDA?
