Open finance and social media: What’s the link?
On 28 June 2023, the European Commission proposed a new regulation to create a framework for financial data access. Many refer to this initiative as the open finance framework, while a smaller group are fond of referring to it by its acronym, FIDA.
The goal of this initiative is to enhance the sharing and use of data by financial and non-financial institutions, which would in theory set the stage for new services and products for consumers. However, without the correct safeguards, the open finance framework could just as easily increase the risk of mis-selling, unfair commercial practices (for example, price discrimination), and financial exclusion.
Last year, Finance Watch published a study focusing on consumer credit across the EU. Over the course of our research, we discovered that in some countries, social media data was in fact being used to gauge the creditworthiness of someone looking for a loan. This data is not relevant for the task at hand and can therefore lead to mis-selling and/or financial exclusion. In addition, it raises some serious questions when it comes to the use of such data under the open finance framework, currently being discussed at EU-level.
We’re not the only ones concerned about this. In an opinion paper on FIDA, the EDPS - European Data Protection Supervisor stated that there is a need for the proposed data use perimeter rules (under Article 7) to also cover ‘new’ data sources, like social media, which can lead to overly granular analyses of vulnerable consumers, such as persons with a low income, or may lead to financial exclusion or unfair commercial practices.
So what needs to be done under the open finance framework?
Finance Watch, alongside BEUC - The European Consumer Organisation, calls on EU policymakers to ensure that the open finance framework sees the European Supervisory Authorities (ESAs), in consultation with the European Data Protection Board (EDPB), introduce restrictions to combining customer data obtained pursuant to the open finance proposal with personal data obtained from these 'new' data sources, such as social media.
The good news is that given that the EU has taken steps to account for this risk in other areas, including in the new Consumer Credit Directive (CCD), ensuring that the rules under the open finance framework also explicitly prohibit the use of certain data combinations from third parties would enhance regulatory consistency.
Another point that needs to be addressed under the open finance framework is whether ‘big techs’ should be allowed to benefit from the enhanced data sharing and use of the open finance framework.
Again, we can turn to past action by EU legislators for inspiration. Based on the rationale of the Data Act, FIDA should also exclude designated gatekeepers under the Digital Markets Act (DMA) from the scope of the access right to FIDA data.
The small number of ‘big tech’ companies, like Meta and Amazon, have considerable economic power in the digital economy through the accumulation and aggregation of vast volumes of data and the technological infrastructure for monetising them.
Existing and new market operators are unable to challenge or contest them, so not only is giving them access to the open finance framework a risk for consumers, it could also create an unequal playing field.
For those who are interested in diving further into the details of the open finance framework, we recommend reading:
Our policy brief on this topic published in September.
This position paper from our friends at BEUC published in November.