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The European Banking Authority (EBA) has identified a preliminary list of risks and potential benefits that the innovative uses of consumer data may bring for consumers, financial institutions and financial stability more widely. Institutions may obtain continuous insight into purchasing habits and preferences, as consumers engage in payment transactions through their accounts or cards. The work of the EBA focuses on the use of consumer data in the banking sector, including retail payments.
According to the Discussion Paper, potential benefits to consumers include cost reductions and improved product quality, while financial institutions can benefit from new sources of revenue and reductions in costs. The EBA also flagged risks for consumers, mostly in the form of information asymmetries, and data misuse and security. This in particular is the case when data usage is not properly described or updated in the contractual documentation provided by financial institutions, or when consumers may simply not understand the information on how their data may be used.
Risks to financial institutions are also identified in the paper. The questionable use of consumer data may expose institutions to reputational risks, while competitive distortions may emerge, as institutions which are not in a position to process consumer data may not be able to compete with new market entrants specialised in using consumer data. Issues related to data security are also valid for financial institutions, since they may become exposed to legal risks too if their IT and storage systems are compromised.
Comments to this Discussion Paper can be sent to the EBA by 04 August 2016.