Digital finance and data protection: benefits, risks and how the system needs to change
Last week, international actors marked Data Privacy Day, raising awareness of data protection best practices. And for good reason, too. There is an almost incomprehensible amount of data out there, and much of it is…ours.
Names, emails, browsing history, financial data, location data. We all access that data, or it's accessed on our behalf, in different ways and across many parts of society — one hotspot in particular: financial services. Much of that access is consented to and helps digital financial service providers and consumers in myriad ways. But where there’s lots of data, there’s usually a fair bit of risk, too.
Here, we examine the connection between digital finance and data protection, the benefits and risks, and how the system needs to change to keep consumers safe.
What’s data got to do with digital finance?
In 2024 alone, the global volume of data shared was estimated at 149 zettabytes. To put that into perspective, 1 zettabyte is 1 sextillion bytes. In digital finance, the combination and exchange of personal, financial, identifying, and other bits of data can aid its delivery to consumers around the world.
This data exchange powers all the big and small financial actions that many of us - as consumers - already take for granted, day to day. From the perspective of financial entities and service providers, this data exchange can help them gain insight into customer behaviour, personalise experiences and identify fraud.
Despite the voluminous amount of data being shared worldwide, many government programmes to facilitate safe data exchange and to expand digital access to banking networks are still nascent. These programmes - known as ‘digital public infrastructure’ strategies - are based on the premise that certain types of data, including identity and payments information, can be linked together in ways that massively accelerate financial inclusion and improve delivery of public services.
The Positives for Consumers
Let’s leave the big numbers, big data, and theoretical outcomes to one side for a moment, and think about a real-world example.
Take Mohamed. Mohamed opens up his banking app. He accesses it through face ID, which relies on biometric data. As a retiree, he wants to check the status of a pension payment (a “government-to-person” payment). This type of transaction is facilitated by the exchange of sensitive data between governments, service providers, and people. Because of this exchange, the government can verify Mohamed is actually Mohamed, the service provider can receive the funds, and Mohamed can close the app happily, knowing his payment’s arrived.
This is, of course, just one example of how the flow of data can benefit digital finance providers and consumers alike. There are plenty more. If a provider can get access to an unbanked person’s utility payment data, for instance, they’ll be able to get a more accurate picture of their creditworthiness. “Open banking” is another example where money saving apps are able to access certain financial data held by your bank.
Whilst these case studies offer clear benefits, the data being accessed and shared here is highly sensitive. And as with any data stored, it is at risk of a cyberattack or breach. There’s also the possibility that parties who are granted access to sensitive data could abuse that privilege.
With large amounts of personal data at risk, there’s a trust issue.
The trust issue (and the risks to vulnerable consumers)
A study carried out by Visa Navigate revealed that only 39% of consumers globally believed companies used their data in accordance with consent granted, while 49% believed companies used their data beyond the terms of consent.
Vulnerable consumers are particularly exposed to data protection issues. Many elderly users of digital financial services have limited financial and technology capabilities, which inhibits their ability to understand and exercise data privacy rights. The same is true of people with certain disabilities. Any disability that impacts the reading and comprehension of data privacy disclosures, for instance, severely limits the quality of consent given.
Even if you don’t consider yourself a ‘vulnerable’ consumer, the reality is most of us will be touched by some form of vulnerability in our lives — be it a health, income, or capability shock. And vulnerable or not, people from all walks of life can be affected in a variety of ways. Whether it’s having limited control over their data, or being on the receiving end of unauthorised collection, disclosure, or fraud.
How to change the system in favour of consumers
So, what needs to change? How can this system be tweaked to preserve both the rights of consumers and the benefits they currently enjoy?
1. Improve transparency in digital finance
Our Members tell us time and again that opaque, misleading, and inaccessible information in digital finance harms consumers. What does that look like? Key terms or requests for consent are buried in lengthy documents. Product design that pushes people towards expensive services, and away from options to cancel or seek redress. These actions, and many more like them, contribute to the erosion of trust between providers and consumers.
Consumers need relevant, timely, and inclusive information. Our call for transparency is a demand to provide information to customers that is genuinely helpful, in a way they can understand, so they can make informed financial decisions.
2. Give individuals more agency
Zettabytes of information. Complicated technology and terminology. So much in the world of data protection is overwhelming to us. One of the results of this? Many consumers just don’t have a good picture of what data of theirs is out there, and who has access to it.
Privacy-enhancing technologies can paint this picture for consumers — and help people take action if they don’t like what they see. One such example from within our Member network is: Permission Slip. Consumer Reports created an app that lets consumers swipe through the data different companies have on them, and with a few taps, they can request that it be deleted.
3. Build regulatory frameworks that reflect consumer realities
As more data is created and shared, more of it flows across borders. Like everything, this has its benefits and risks. The risks should be curtailed by international agreements and frameworks on cross-border data sharing. But our research has found there’s a big gap between the protections promised on paper and the reality of consumers struggling to seek redress. We need to build and improve regulatory frameworks to make sure our data, and the right to recourse, are protected.
4. Level the playing field between private and public sectors
In recent years, advanced technologies like AI have been mainly developed in the private sector. These kinds of technologies are set to revolutionise financial services but also pose significant risks to consumer rights. Meanwhile, governments have been slow to develop their own AI-powered supervisory technology (“SupTech”) to protect consumer rights.
There are emerging examples, like the Central Bank of the Philippines’ BOB chatbot, which aims to enhance consumer financial protection. But these efforts need to be scaled and supported if we’re to give consumers the protection they need in our current landscape.
5. Change the data mining mindset
Last, but not least: we need an attitude change. The notion that “more data is good data” has gone unchallenged for too long. And when new or novel forms of data collection emerge — in the burgeoning world of video game payments, for instance — the starting point can no longer be ‘collecting this data is fine, let’s figure the rest out later’. We need to value data for the sensitive commodity it is.
Getting the balance right
Digital financial services stand poised to change the game when it comes to financial inclusion. It could help 1.4 billion unbanked people access financial resources, reducing poverty and fostering economic growth in the process.
However the risks must be addressed while benefits are being pursued.
At Consumers International we’re working with Members and a wider cohort of actors around the world to address those risks. Whether that means teaming up to deliver recommendations to policymakers on cross-border data exchanges, revealing how deep the gaps of consumer vulnerability are in the sector, or spearheading campaigns to increase transparency across the finance sector. Together we are uniting in our vision for fair finance that puts consumer voices at the heart of the conversation.