Data has transformed the economy in the 20 years since Google’s domain name was first registered. The pace of change is likely to increase, as the volume of data, and our ability to derive insight from it, continues to grow. Many of today’s most valuable businesses are built on data and all the major tech players are doubling down on their efforts to achieve data supremacy. Beyond tech, data is becoming a source of advantage in almost every industry, from automotive to finance, from energy to retail.
For ordinary consumers, this has been a double-edged sword. On the one hand, there is an ever growing selection of ‘free’ digital services of extraordinary variety and ingenuity. Is there a contender for an innovation that has had a greater impact in the past 30 years than online search?
On the other, the primary business model that has emerged over time in the sparsely-regulated space of online services is advertising-based, with consumers trading intimate personal data for services. The jury is still out as to whether consumers are happy with this trade, are not aware it is happening, or simply have no credible alternatives.
What is changing is that regulators themselves are catching up with the data revolution. This is important – regulators move slowly, but often decisively. The laissez faire model of regulation that lasted from the 1980s to the financial crisis, transformed many Western economies and societies. Regulators’ evolving approaches to data, which will vary from jurisdiction to jurisdiction, will also have enduring impacts on our economies and societies.
One aspect of this is regulators starting to ask themselves whether the data giants themselves should receive more of their attention. But the politics of this is nightmarish and action is unlikely to be anytime soon. Instead, regulators are increasingly turning data to their own – and to citizens’ – advantage.
In part, this is just about regulators themselves starting to use cutting edge data science to achieve their own objectives. In the UK, for example, the Financial Conduct Authority is interrogating massive customer datasets provided by the entities it regulates, in order to identify consumer harm and the impact of proposed policies.
Open banking leads the way
Of greater significance is a more assertive approach by regulators to levering open closed datasets in markets that are not working as they should, in order to stimulate competition and innovation. For now, regulators’ greatest impatience is reserved for the finance industry, its reputation battered by the financial crisis but, structurally, little changed since. In 2018 ‘open banking’ will finally arrive; first, in the UK and the rest of the EU, then, by a growing list of other countries.
Open banking confers control of its data on customers, and (in its best manifestations) makes this control real by providing state-of-the-art technological infrastructure that enables customers to share their data securely with trustworthy third parties. This removes a massive barrier to entry for innovators, akin to how the App Store has enabled developers to reach millions of smartphone users. Consumer adoption will no doubt be slow, not least because regulators’ progressive intent has not been matched by a concerted communication effort. But with open banking, a Rubicon is crossed from which there is no coming back. In the not-too-distant future, ‘closed banking’ will be consigned to the dustbin of history.
As they get to decide and see how their banking data is used, customers will also start to ask more questions about what’s happening to their data in other less regulated walks of life. The General Data Protection Regulation (GDPR), which also kicks in 2018, confers general new rights on citizens in relation to their data, including the ability to port it at will from provider to provider. Many assume that regulators have the data giants in their sights with GDPR, but so far, it mainly seems to have spooked innocent non-profits, who have scrambled to understand how the regulation, with its threat of unprecedented fines for ill-specified wrongdoing, will actually be applied. GDPR’s impact is going to be a very slow burn, but if regulators see it through in time, its impact could be to effectively take the open banking model economy-wide.
Other innovative approaches to data are being taken by regulators. The UK’s energy regulator is building a database of consumers getting a raw deal from their energy providers, which it intends to use to stimulate switching. Smart metering, currently being rolled out across the UK, will provide rich data that could be used to benefit consumers (and the environment).
More ambitiously still, the UK government is pursuing a programme to develop ‘data trusts’ to underpin the sharing of data between organisations holding it and those seeking to develop artificial intelligence solutions. The government is also developing several regional Digital Innovation Hubs that will enable secure access to health data for research.
This points towards the development of new categories of data – neither closed (like personal banking data), nor open (like some kinds of public sector data). One is shareable data, with the citizen in control, as we are seeing with open banking and the many potential opportunities created by GDPR. Another is what we might call semi-open data, where regulators make available private data on a controlled basis for public interest purposes.
At present, the focus is on research use cases, but this could also be a powerful weapon for regulators seeking greater competition. Nesta’s Open Up Challenge, for instance, which is part of the UK Competition & Markets Authority’s package of measures to increase competition in retail banking, has provided controlled, secure access to anonymised small business transaction data to fintech firms to support them in product development. A similar approach could surely help enable new solutions to the perennial problem of financial inclusion.
Regulators have arguably been slow to the game, but 2018 will mark the year when data starts to become their most powerful tool.
Chris Gorst leads on challenge prizes at Nesta.