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Entrepreneurs Becoming A Driving Force Behind Data Sharing In The US

Europe and the U.K. solidified their reputations as having progressive views on data security and ownership with the PSD2 and GDPR regulations that came into effect earlier this year. Elsewhere in the world, countries are looking toward PSD2 and GDPR to consider adopting similar rules in their own markets.

The U.S., however, is not necessarily expected to follow suit. That doesn't mean enhanced data privacy, security and sharing aren't in the cards for the nation's financial services space, though.

Even before GDPR and PSD2 came into play, the U.S. Center for Financial Services Innovation's (CFSI's) Consumer Data Sharing Principles report concluded that "further coordination among all of the stakeholders in [data sharing] financial institutions [(FIs)], data aggregators, FinTech providers, regulators and consumers themselves will be critical to achieving a secure, inclusive and innovative financial data-sharing ecosystem that supports consumer financial health."

U.S. banks have begun to develop and deploy their own APIs to facilitate data sharing with FinTech firms, too.

Small businesses (SMBs) are ready and waiting for these trends to gain steam in the U.S., said Kurt Rathmann, CEO and founder of small business financial software provider ScaleFactor. The reason, he recently told PYMNTS, is that entrepreneurs need to get things done more quickly and, in some cases, want their service providers to do it for them, even if that means sharing sensitive data.

Open banking and data sharing may not proliferate as quickly as some small businesses may like, however.

"The U.S. has traditionally been a bit laggard in the evolution of banking and FinTech," he said, adding that the market has always eventually caught up to the rest of the world, and it will probably be no different in how the U.S. embraces open banking and data sharing.

"The world we live in today is more receptive to [data sharing] than it was even a year or two years ago," Rathmann continued.

Small businesses are especially supportive of an interconnected world for their financial service providers. As entrepreneurs adopt new technologies, integrations can be subpar, and Rathmann said it's causing friction for business owners, often in the form of wasted time.

"There are lots of different solutions, that solve specific problems, that business owners are using, but the issue is that they don't integrate together very well," he said. This lack of interoperability means some of the utility of business data can get lost, and prevent entrepreneurs from not only having a 360-degree view of their companies, but having that vision in real time.

On-demand access to financial data is critical today, he said, but rarely accessible. Rathmann said it's "one of the biggest trends" in the SMB financial services space he sees currently, that it takes too long for companies to collect and analyze their financial data. Traditionally, this process occurs with the monthly close, which is then followed by monthly reports. Ultimately, these overviews offer a window into the finances of a business a month or more previous.

"The trends we see are the efforts to speed that up, and take the lag out of that process in an effort to provide more real-time information to a company," he said.

To do that, however, platforms must communicate with each other and facilitate data sharing. With entrepreneurs pressed for time on a daily basis, data sharing can provide them the speed-to-insight they are seeking, making open banking initiatives a much easier pill to swallow for U.S. entrepreneurs, according to Rathmann.

"The reality is, we know what we need to send to a third-party, or to a bank, with [the small business owner's] permission," he explained. "They would like us to just do it. The process whereby they would figure out what they would need to send, and whether that information is complete, is really a friction point for them."

The SMB FinServ space is not yet entirely at the point where it can proactively share financial data on behalf of small business customers (once they receive permission), but it's getting there.

There are inklings of GDPR-like regulations in the U.S., namely in California, where similar data privacy legislation was passed earlier this month. The California Consumer Privacy Act of 2018 moved very quickly from bill to law (in only one week), and analysts say the legislation could spark similar initiatives in other states.

Aside from regulation, competitive market pressures are driving the U.S. toward open banking, as banks realize interoperability with FinTech firms will boost customer satisfaction and retention without the R&D costs of developing their own supplementary products.

As a company designed to take advantage of its ability to integrate with a small business' existing back-end financial systems, ScaleFactor would undoubtedly benefit from such shifts in the U.S. market. Investors signaled their confidence in the company's ability to work with the current state of the market, providing $10 million in Series A funding earlier this week.

The company also has its finger on the pulse of faster payment initiatives that are making headway in the U.S., too. Rathmann said Same Day ACH is another example of how entrepreneurs are embracing any financial services trends that enable them to get work done more quickly, weary of extra fees and lengthy processing times when they need immediacy for things like rent or payroll.

With the focus growing on SMB financial services, entrepreneurs could emerge as a driving force behind the adoption of open banking and faster payments in the U.S.

"We see this space evolving," said Rathmann. "What's exciting about small businesses is that many are the first to adopt new trends and technologies, and try it out.



The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.