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22 Sept 2022

Klarna comment: The traditional retail banking model is broken

The future is open, especially in finance. The increasing use of data analytics and data sharing is a technology-driven trend particularly visible in finance. The European Commission plans to pass new legislation to foster a framework that allows for easier data-sharing across a wide range of financial services, dubbed “Open Finance.”  

This is an exciting prospect. We at Klarna believe Open finance is a great opportunity for customers and society as a whole. It will allow industry players to aggregate data on various services and create comparison tools that benefit consumers. It has the potential to drastically increase consumers’ access to information not only about their payments and spending habits – which helps them to manage their spending, but also about their investment and pensions, which is especially important in times of soaring inflation. 

How would that work in practice? People could securely share their data, which includes their pensions, current accounts, their securities portfolio,  and such – and industry participants could compete for their accounts, similar to utility switching. Alternatively, other customers may prefer to keep their account where it is, but unlock the data therein for using it with other value-added service providers. 

Big techs keep data under the pretense of protecting privacy. They then monetise this data, growing their profits at the expense of society. Other businesses that hold consumer data, such as banks, are notorious for making it very difficult for consumers to move to another bank. We have experienced difficulties in accessing these data because the holder of consumer data either refused to give access to data outright, with no valid reasons provided, or prevented giving access to data due to legal obstacles, such as contractual restrictions, or due to unreasonable fee levels for access to these data.  

Open banking is part of Klarna’s DNA, and we live it already.

Open banking is part of Klarna’s DNA and we believe it is the future of banking.  Klarna was born from frustrations with traditional banking and credit cards. We believe there is a better way. We have always viewed open banking as a revolutionary tool to empower consumers in the market. Klarna acquired Sofort GmbH, a payment service provider, in 2014 to allow customers to avoid traditional credit card fees. Since then, we have created our own scalable open banking platform – Klarna Kosma. Kosma is a real game-changer, giving businesses access to data from over 15,000 banks, to allow them to focus on providing innovative products and services for the consumers’ benefit. 

In finance and beyond, there is clearly a technology-driven trend towards greater use of data and data sharing. Open banking offers significant benefits for all consumers, but particularly for vulnerable consumers. It could allow, for example, to conduct enhanced affordability checks for our BNPL products. It will enable lenders to access and track key metrics on suitability and vulnerability in real time.

Who owns the customer data? Customers do!

The EU´s Open Finance Framework should promote open data and data mobility, free of charge and easily done. We strongly believe that consumers should own and securely share their data with their partners if they want to. It would help them understand what these partners are doing with their data. With our consumers’ trust and consent we are able to collect data to provide a superior shopping experience on behalf of retailers.

Financial firms, including banks, should compete for customers by delivering value, not by locking away data. They should start competing to increase the quality and value of their services in the interests of people, not profits. We have seen the benefits for EU consumers  of easy switching in other utilities (telecom, energy), why hasn't it been possible in banking? 

We need data mobility so that people can switch banks or Big techs in a split second and ditch bad credit providers and pick the best option for them. This must be made possible in compliance with privacy; financial data should only be shared with regulated entities to ensure customer trust and adequate security of such data. 

Prescriptive regulation such as GDPR, has failed to provide real customer value, occasionally having the opposite effect. Just take the example of EU cookie legislation, whereby the aim was to enhance privacy, but it ended up in cookies clicking, making people complacent and not reading T&Cs. Regulators across the globe are beginning to embrace principles-based regulation, which define the direction of travel, without hampering innovation (especially in dynamic markets) and by encouraging healthy competition, that will also open up data, mobility and choice. The EU has a huge opportunity to redesign a regulatory environment that enables EU tech companies to grow, compete, innovate, and deliver maximum value for EU consumers. The EU should rethink smarter regulation if it wants to expand as a fintech hub. Open and smart data (digital information that is formatted) are examples of where this opportunity is greatest. 

If you would like to learn more about Klarna’s perspectives on Open Finance global.pa@klarna.com .