The Ministry of Finance and the Bank of Israel are considering requiring the commercial banks to transfer within six months information, including the current account transactions of the banks' customers and a list of uses made of their credit cards, to fintech companies active in price comparison and consultation. Sources inform "Globes" that the Bank of Israel recently instructed the banks to prepare for applying a technological solution that will give technological platforms providing cost comparison services (aggregators) access to the banks' systems in order to obtain data about customers authorizing this. At the same time, regulatory sources say that no final decision has been made to transfer these sensitive data.
The plan is part of the implementation of a memorandum of principles drawn up nearly two months ago by the Ministry of Finance and the Bank of Israel. It appears, however, that in practice, the banks will be obligated to transfer broader information about their customers to the platforms than described in the memorandum.
In the long term, the banks are supposed to make application programming interfaces publicly available (open APIs). Fintech concerns will be able to interface with the bank and its data, and obtain information from it about customers who authorize this. Open APIs will open the door to the banks' locked databases, providing fintech concerns with access to information about the customers of competing concerns and enabling them to use the information to make attractive offers to these customers. Such a process is likely to dramatically intensify competition.
The Committee on Increasing Competition in Banking and Financial Services (Strum Committee) decided that such an interface should be introduced into the banks' systems. The process of creating the interface, however, is likely to take two years. As an interim solution, the memorandum states, "The Bank of Israel will take measures to arrange for transferring a 'banking identity card' from the banks to supervised third parties, following a request from a third party in the customer's name. Additional information will be transferred as agreed by the joint team. The service will be put into effect in 2018, following the publication of a regulation by the Bank of Israel Banking Supervision department and preparation by the banks."
The goal of the initiative is to enhance competition for private customers in the banking system. Over the past decade, the use of search engines and comparison in various spheres has increased, including tourism and retailing, thereby saving money for the customer.
The average customer does not usually shop among financial concerns. The same digital platforms are designed to make comparing prices simple and quick. The more data there is about the customer, the more effective the process will be.
The Bank of Israel has begun promoting the regulation agreed with the Ministry of Finance. In meetings with the banks, it was learned that the possibility of having the banks transferring not only the banking ID card to the relevant concerns, but also particulars of the customer's current account transactions and credit card transactions, including where the purchases were made and how much money was involved, was under consideration.
Banking sources said that the increase in information that must be transferred is far-reaching. "The information will go to concerns with licenses, but the license terms and the supervision of the concerns are not particularly stringent. Who will guarantee that this information will not be leaked, and that it will not be misused? In the event of a malfunction, complaints will be made against the banks that supplied the information to the concerns," a banking source said.
The Capital Market Authority will be responsible for registration and supervision of the fintech concerns. A joint team of the Ministry of Finance, Ministry of Justice, and the Bank of Israel is to formulate the rules for the information transfer procedure and the licensing and supervision conditions. The regulations are designed to address the type of information to be transferred, how frequently it will be transferred, information security requirements for the licensed concerns, and access to the banks' data. Other questions will also be decided, such as what information the fintech concern can keep and what it must delete, and rules for working with customers.
On the one hand, the measure has both potential for significantly improving competition in the banking system. At the same time, the data that the Ministry of Finance and the Bank of Israel are considering opening to external parties is considered very sensitive. A malfunction causing a leak or misuse of information is liable to have grave consequences.
Published by Globes [online], Israel Business News - www.globes-online.com - on February 12, 2018
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