How A Different Approach To Data Can Create A More Inclusive Economy

Jess Turner, Executive Vice President, Global Open Banking and API at Mastercard.

Today’s consumers and small businesses are sitting on a treasure trove of information that many don’t realize has enormous potential to open new business opportunities, help communities and expand access by bringing more people into the digital economy.

But up until now, it’s been difficult to access and fully put this mountain of data to good use because it has been prohibitively expensive and time-consuming and can cause a significant draw on resources that most businesses just haven’t been able to risk. Traditional and nontraditional banks may not have the data they need to fully tap into these opportunities.

As a result, we’re seeing missed potential. We can vastly expand financial inclusion by tapping into alternative data sources. The key is to view data as an asset that not only enables individual experiences but also drives collective societal change by bringing more entrants into the digital economy.

Leveraging Data To Make An Impact 

Right now, the technology making an immediate impact on harnessing data for good is open banking.

Open banking enables seamless, secure data sharing between banks and third-party providers, opening up access to more secure, personalized and convenient financial experiences for individuals and small businesses.

Usage and momentum for open banking are high among businesses and consumers. In the U.S., more than 100 million Americans have allowed third-party access to their data in exchange for better services. According to our Mastercard research, convenience is a top motivator, simplifying tedious tasks such as paying bills and transferring money between accounts.

But the possibilities of open banking go far beyond convenience. It can significantly cut down on the time and resources needed to paint a full picture of creditworthiness, helping to give the unbanked and underbanked better access to financial experiences they may historically have been excluded from.

Open banking can also use data to democratize access to credit—for both individuals and small businesses alike—with alternative credit scoring methods that take into account a wide range of financial behaviors and data points, such as utility and rent payments. It benefits people who have thin credit files, including the 19% of American adults who lack a conventional credit score, and it can make business ownership more accessible by eliminating financial hurdles.

In addition to facilitating alternative credit scores, open banking helps small business owners better determine their creditworthiness, maintain consistent cash flow and access working capital so they can grow and thrive. When our small businesses get easier access to the capital they need to expand, that trickles down into our communities as well.

Open banking is helping individuals, too. For example, it’s making it possible for more people to realize their dream of homeownership. Fannie Mae and Freddie Mac use Mastercard’s open banking data, including rent history and positive cash flow history, so that mortgage lenders can approve more homebuyers.

When banks embrace these new types of digital solutions, it can significantly aid the loan origination process.

But the use of alternative data made possible by open banking holds promise for extending credit well beyond mortgages, whether that’s in the form of auto loans or even via credit cards.

The Trust Factor

Even during all this progress, we’ve barely scratched the surface of what open banking technology can do to drive positive societal change.

As more consumers get comfortable securely sharing their financial data, open banking can help us advance to areas beyond our imagination, such as tackling major societal issues like crime reduction, poverty and even climate change.

It’s clear that open banking is a game changer for building a more inclusive digital economy. But one key ingredient is critical to driving adoption: trust. According to our own research, questions about security are a top barrier to preventing the wider adoption of open banking.

To truly unlock open banking’s potential to drive societal change, data protection and transparency must be the top priority. Participating entities should uphold rigorous security standards including data encryption, regular security audits and multifactor authentication to ensure all ecosystem participants can confidently share their data and access these transformative financial experiences.

The future of open banking and its potential for doing good lies very much ahead of us. With the ecosystem working together for the benefit of consumers and small businesses, the possibilities are endless.

Forbes Technology Council is an invitation-only community for world-class CIOs, CTOs and technology executives. Do I qualify?