A partnership between the Department for Business, Innovation and Skills (BIS), consumer groups and major businesses, the midata program is designed to help consumers better understand their spending behavior and subsequently enable them to make better decisions. And this, believes BIS, will boost competition and prompt innovation within the economy – while also helping the UK become a leader in data management tools and systems.
Under the program, consumers should be able to request from companies—and promptly receive—their own transaction data in a simple, electronic file called a personal data inventory, or PDI. Consumers will then be able to manipulate their PDIs to better understand their spending patterns. For those who cannot do this on their own, the BIS expects new services to emerge to help people analyze their data.
Banks on board to shape midata
Already a handful of the UK’s leading financial services companies—including high street banks and comparison sites—have voluntarily signed up to the program, according to BIS’s website. So far, participants have agreed core principles and have begun to tackle issues such as privacy and security. They have also stated that businesses will only have to comply if a customer requests their data and will not be required to collect information they are not already capturing
In September 2012, BIS concluded a consultation that sought input on its proposal to force businesses to comply. We currently await the consultation’s results as well as the government’s next steps.
Impact on the financial services sector
Banks are already using customer data to help customers gain aggregated account views, create budgets and compare offers. In this sense, midata is not particularly new. The program will simply make this process faster, easier and more robust for consumers.
If personal documents such as identification codes are available electronically and are therefore more easily accessible, the program may also make it easier for banks to know their customers (KYC).
Easier access to data could have a bigger impact on the landscape for advice and money management – offering banks a great space for further innovations. If banks do not offer to help their customers better understand their options, it seems likely that entrepreneurial third parties will. All customers will need to do is send their PDIs across to those in line to help them.
It is worth noting that banks in the UK have been providing switching services for several years. Yet with the switching process known to be slow, manual and prone to errors, there has been little customer uptake. Midata may also change that.
So would it be good for banks to see more of their customers switching? That, of course, depends on customer profitability. With regard to profitable customers who – for example – periodically overdraw their accounts, incurring interest and fees, midata could cause them to switch by showing them how they would save money with a competitor.
While it is too early to know exactly what midata will require, banks should begin to consider how well they are capturing information and to think ahead about the design or their customer information systems.
In particular, banks must become much better at understanding customer dynamics. Accurate views of individual customer behavior will help them understand what is making customers profitable or unprofitable. Only with this information at hand will banks have an opportunity to redesign products and services to attract and keep the customers they want.