Data Democratization: Effects on the Consumer

As a business, you are likely flooded with information from every angle. The vast amount of data available to store and process can seem overwhelming, which is why so many companies put processes and controls in place to regulate data access. This creates pockets of people who are "in the know" as well as gateway bottlenecks just to view information.

Data democratization tears down those barriers and gives data access to anyone who needs it, with simple tools to help aid in analysis and decision-making. One interesting aspect of the democratization of data is the various effects that it has on the consumer.


Data Democratization and Protecting Consumer Rights

Whether you are looking for a reliable source for selling a loan or buying loans, do you believe that consumers have a right to accurate financial information about themselves? About 93% of consumers interact with banks in some way, whether through having bank accounts, loans, or revolving credit accounts. Some banks offer their customers simple and efficient ways to access their financial data, while others make it a challenge.

In 2016, the Director of the Consumer Financial Protection Bureau (CFPB) expressed some concerns about banks limiting data access and requested that they be more forthcoming with data for their own customers. By democratizing data and giving consumers unfettered access to their own financial information, this increases the chances that consumers will make more sound financial choices, including optimizing investments and saving more for retirement.

Data Democratization's Effects on Financial Services Consumers

The age of traditional banks holding back client data or having antiquated systems is coming to a close. Whether banks want to open up their data vaults or not, the FinTech sector is forcing their hand with policies that stress transparency and giving consumers full access to data.

This change not only gives consumers a better picture of their own financial health, but it also provides them with access to better and more personalized financial services. By opening up access to data, financial services companies can create a more flexible and personalized experience for consumers, who can select the financial products and services that best suit their needs.


Data's Effects on the Cost of Borrowing Money

The democratization of data has resulted in new tools for all players in the financial market. As consumers continue to gain increased access to helpful data, financial services providers are also enjoying some positive changes that will result in additional benefits for consumers.

LIBOR (London Interbank Offered Rate) is the benchmark for bank interest rates all over the world. According to Investopedia, "LIBOR is equivalent to the federal funds rate, or the interest rate one bank charges another for a loan. [It] is used as the key point of reference for financial instruments, such as futures contracts, the U.S. dollar, interest rate swaps and variable rate mortgages."

Many banks use the London interbank offered rate as a benchmark for its variable rate loans or to value loan portfolio sales, but that could soon change. It's more likely than not that LIBOR will be phased out over the next several years, which leaves room for either another index to take its place or a better form of reference.

A recent Financial Stability Report reveals that as many as two-thirds of variable-rate mortgages and half of private student loans use the LIBOR index.

Frankly, many banks don't see the benefit of using LIBOR as they have in the past since they are making loans to consumers based on more complete data. Consumers who have loans based on LIBOR currently will see one beneficial change in the future. Banks that used LIBOR may switch to another index such as the Sterling Overnight Average Index (SONIA) which is more reliable and less open to manipulation than LIBOR.

Some FinTech firms and a few banks are also using a different sort of technology to record financial transactions - called blockchain. This is a newly-developed ledger system that allows for fast updates of data as well as access to that same information by many different users. There is more transparency with blockchain, but also a lower cost of resources, which can reduce the overall cost of borrowing for the consumer.

Optimize Loan Portfolios with Improved Data Access

Players in today's financial market not only have access to a wider range of tools to drive success, but they also have a heightened responsibility to consumers due to the wealth of financial data available. The democratization of data can give all players in a bank access to the data they need for key decision-making, but it should also be available to the consumer for the same purposes.

Our nation's financial services industry is feeling increasingly uncertain, which is why it makes sense to seek out a reputable asset management company that can help minimize the risk present in existing loan portfolios. A bank can continue to provide exceptional service to its clients, comply with current regulations, and protect its bottom line through some strategic partnerships with mortgage note buyers.