The digital data being hoovered up by companies and governments from customers and constituents is set to become a major driver of productivity and micro-economic reform over the coming decade.
Data is proliferating. IBM reckons 90 per cent of the world’s information was generated in just the past two years; and the amount of data generated worldwide in 2002 (5 billion gigabytes) is now being generated every two days. As the Productivity Commission pointed out last month, all this data should be seen as a key economic resource because it has the potential to lift efficiency, empower consumers, boost competition, drive innovation and make governments more accountable.
Data is becoming “increasingly integral to how the financial system and broader economy function,” David Murray’s financial system inquiry observed. Pointing to ever-expanding computational power and smarter algorithms, the FSI said using data well will allow businesses to better understand the needs of consumers, improve product offerings, manage risk and reduce costs.
The investment by three of Australia’s largest companies – National Australia Bank, Westpac Banking Corp and Qantas – in the start-up Data Republic, reported in Monday’s The Australian Financial Review, provides a vision of the future where companies securely exchange data with each other to enhance customer offerings.
Banks, along with other service providers across the economy, are desperate to get closer to customers and provide products that are timely and relevant. Banks understand that their own customers spend most of their time interacting with other companies. And so banking or insurance can be made more engaging and personal if a bank works with a telecommunications company or airline or retailer to garner deeper insights.
For example, Westpac’s mobile phone app currently allows customers to turn on a geolocation service so the app knows where they are. Upon entering Sydney Airport, one Westpac customer says they were pinged with a message asking whether they were about to go overseas (they weren’t). A positive response could have prompted the bank to offer a foreign exchange or insurance service.
Yet the future promises to be more dynamic; if Westpac or another bank was to tap data from Qantas, they could know who is flying overseas and where they are going. This would be useful not only to sell the customer a new service but ensure that existing products like their credit cards are not switched off for suspected fraud as transactions start appearing in that foreign country.
Data held by banks is also valuable to other companies. Banks are prevented by the terms and conditions of their collection statements from ever sharing any private information about particular customers with anyone. (Data Republic, which has been built with bank-grade security, uses a process of “tokenisation” to protect personal information and no personal data ever goes onto the platform.) However, information from the bank systems that process debit and credit cards could be aggregated and offered, for example, to a property developer to tell them about the sort of products that are popular in a particular geography. Such information could be very helpful to determine the types of tenants to put into a new shopping centre.
Australia’s big banks are already starting to think along these lines. NAB has a relationship with data analytics firm Quantium, under which it provides Quantium with anonymised credit and debit transaction records to allow Quantium to provide analysis on consumer trends.
However, when it comes to bilateral data sharing, banks have been highly cautious – which is entirely appropriate. As Data Republic co-founder Paul McCarney explains, “banks are good at managing risk and governance around money. Now banks are realising all the information they have on all their customers is worth something. But they can’t use it unless they apply the same security and risk management processes that they would to customer’s money.”
Westpac’s relationship with Data Republic goes deeper than the equity investment. The two organisations are partnering to develop the world’s first “data banking” service.
The idea is to allow Westpac corporate clients – who will need to obtain permission from their own customers – to securely separate and store customer information on dedicated bank-grade security infrastructure while authorising broader data exchanges to provide insights and analysis. “Banking infrastructure for data” to enable data “to flow as freely and with the same trust, security and privacy as money is critical to moving towards a data-driven economy”, says Danny Gilligan, the other co-founder of Data Republic and also the co-founder of Westpac’s Reinventure Group.
As the financial system inquiry recognised, access to public and private sector data will be enhanced if there are more standardised definitions of relevant data and collection processes, aggregation of datasets, and formalised access entitlements and arrangements. This would enhance and maintain individuals’ confidence and trust in the way data is used, the FSI said.
If Data Republic, which is currently expanding into the US, can convince enough big companies and governments to join its platform it may become the link where oceans of unstructured data come together under a single framework. It could become the platform for the NSW government, through its Data Analytics Centre, to facilitate data exchange with the public. It may also have a role in Britain, where the government is pushing banks to develop an “open API [application programming interfaces] banking standard”. Open data APIs will allow publicly available bank data and customer data to be shared externally.
In its “Retail banking market investigation” published last week, the UK Competition & Markets Authority suggested data policy could become the biggest driver of banking competition in the coming decades.
“Of all the measures we have considered as part of this investigation, the timely development and implementation of an open API banking standard has the greatest potential to transform competition in retail banking markets,” the British regulator said. “We believe that it would significantly increase competition between banks, by making it much easier for both personal and business customers to compare what is offered by different banks and by paving the way to the development of new business models offering innovative services to customers.”
Britain is one of many national governments globally developing open data policies. After the financial system inquiry observed that “there has been very little debate around whether government policies [in Australia] could increase access to private sector data to boost innovation and competition”, Prime Minister Malcolm Turnbull issued a “Public data policy statement” last December. It described data held by the federal government as a “strategic national resource”.
Yet the National Commission of Audit noted that Australian governments have only released around 3200 datasets – compared with 10,000 datasets in the UK and 200,000 in the US. The Productivity Commission said last month there is insufficient data sharing between government agencies, insufficient linkages of data sets and a lack of standardisation. Yet a 2014 report by Lateral Economics found that broadening access to public sector data could add around $16 billion a year to the Australian economy, a conservative estimate.
Both the FSI and the review into competition policy by Ian Harper called for the Productivity Commission to conduct an inquiry into data availability and use. This is under way with initial submissions due on July 29. The commission will release a draft report in early November and provide a final report to the government next March.
“Data is increasingly integral to how economies function,” the commission said in its issues paper released last month. “Analysis of large volumes of data is driving improvements in – and the development of new – products, processes, organisational methods and markets. … However, much of the data generated remains under-utilised.”
Productivity Commission chairman Peter Harris says the recent evolution in data collection and analysis suggests “the culture, standards and policy structures that have applied to what is commonly called big data analytics may need to move out of the backroom and into the showroom if community confidence and wide opportunity for innovation are to be maximised.”
McCarney and Gilligan say the commission should focus on regulating the use of data rather than its collection.
They envisage a future where data is regarded as a valuable asset; potentially banks could lend against it, boosting the supply of credit to the economy. Furthermore, when big data sets are linked together, “data network effects” will provide insights that have never previously been possible.