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The Information Flow

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The Information Flow 1

By Sarah Kenshall leads Burges Salmon’s cross-departmental FinTech practice and is a director in the firm’s Technology and Communications team.

We talk of data streams, so let’s imagine a vast river of free flowing data.

How are we to control and harness this flow? A simple analogy would be that of a dam – think Hoover or the Grand Coulee, the huge hydro-electric dams built in the US in the 1930s, and so eloquently eulogised by Woody Guthrie. By damming the river, that energy can be harnessed to work more constructively for the community. Hydro-electric dams provide not only a stored source of fresh water, but also electricity. Water and electricity – two of the most basic building blocks on which modern society is founded.

Getting back to data. In our age where sector after sector is undergoing digital transformation in readiness for the ‘smart’ world powered by 5G, the Internet of Things and edge computing, data is itself a building block of modern living; an extremely valuable economic asset, if only we can control and harness its flow so that it can be used properly for the benefit of the community.

Step in GDPR (as expressed in the UK through the Data Protection Act 2018). GDPR is rarely seen as a building block towards a free flowing of data, but rather a sometimes cumbersome and often costly measure that only restricts this flow. What’s more, it is certainly the case that some companies use the GDPR as a shield to avoid sharing data within a wider eco-system. Yet Recital 13 of the GDPR states that ‘the proper functioning of the internal market requires that the free movement of personal data is not restricted or prohibited for reasons connected with the protection of natural persons’.

The purpose of the GDPR is not just to empower individuals; rather, through that empowerment, it is there to create trust such that individuals can reliably devolve the management of the flow of their data to connected eco-systems of companies, in the knowledge that they can exercise rights to restrict the flow if needs be. These are companies they trust to store, use and share their personal data in a secure, reliable manner in conformance with their legal rights. GDPR provides both the dam and the turbines.

Why build the dam?

So there we have it. GDPR, as both dam and turbines, empowering individuals, and through such empowerment, facilitating data flow. We can see exactly how this empowerment is working in financial services.

Open Banking, a UK initiative mandated by the UK Competition and Markets Authority required nine of the biggest UK banks to implement a common standard API to allow third parties to access customer bank accounts with customer’s explicit consent. There is no limit on the number of third parties permitted by a customer to access their accounts. Some of these third parties may be empowered by the customer to onward share data directly with other permitted third parties. The hope is that the initiative will bring about innovation in the payments industry and break down any data sharing barriers that may be hindering effective competition. A related EU initiative is instigated under the second Payment Services Directive (PSD2) which introduces a similar regime for certain financial service providers (including current and savings accounts providers, e-money and credit card providers – but this is just the start). There are over one million customers now using some form of Open Banking provider, from the newly launched Ordo, whose app aims to take the pain out of billing and payments, to established high growth players, such as Revolut, whose app allows you to see your accounts and transactions in one place.

The information commissioner considers PSD2 and Open Banking as key to unlocking individuals’ rights to data portability. Under Art 20 GDPR, the right to data portability gives individuals the right to receive personal data they have provided to a controller in a structured, commonly used and machine readable format. It also gives them the right to request that ‘a controller transmits this data directly to another controller without hindrance where it is technically feasible to do so’.

These overlapping initiatives make it easier for us as consumers and businesses to hold multiple accounts and compare or switch financial products, perhaps ultimately managing finances through one chosen digital platform, with a proliferation of apps to personalise the services. (Digital platforms acting as the sluice gates to the GDPRs dam).

Of course, new frontiers come with their own challenges and risks, and the harnessed flow of data is no exception. The GDPR, powering the data turbines, is not proof against cyberattack, any more than the Hoover dam is proof against explosives. It is however there to mitigate the risk of data misuse and accidental or negligent leakage. There are challenges around privacy and security with a potentially complex and extended supply chain of providers sharing personal and financial data. However, you can check whether providers are authorised to participate in the Open Banking ecosystem here. It is also worth mentioning that unauthorised payments are still the responsibility of your bank to sort out, even if the payment was initiated through a third-party provider (provided the payment didn’t arise as a result of fraud or your negligence). In the case of fraud, the banks have further put in place initiatives to counter, for example Authorised Push Payment fraud, which we have written about here.

Finally, the digital world has a tendency towards concentrating power in the hands of a small number of platform providers (for example, Amazon, for on-line market places, Spotify, for music). It is quite conceivable that tech giants such as Google, Facebook or Amazon could get in on the Open Banking act and manage every aspect of your financial life. Or maybe the provision of a dominant integrated financial service platform will be a new name? Perhaps a fledgling challenger banks, yet unknown.

Sarah Kenshall

Sarah Kenshall

Where else does the river flow?

The FFD Regulation, an EU regulation for the free flow of non-personal data, has been applicable in the EU and the UK since May 2019.

The regulation is primarily aimed at cloud providers (of storage and other data processing services) establishing, amongst other things, self-regulatory codes of conduct to make it easier for businesses to switch data service providers (or repatriate data to themselves). The aim is to avoid vendor lock-in practices, such as requirements for specific data formats or contractual arrangements.

Data from these B2B tributaries may also flow into our river. The FFD regulation stipulates that where non-personal data is ‘inextricably linked’ with personal data, the GDPR governs the whole dataset. The Commission’s guidance note on the regulation goes on to note: ‘Mixed datasets represent the majority of datasets used in the data economy and are common because of technological developments such as the Internet of Things (i.e. digitally connecting objects), artificial intelligence and technologies enabling big data analytics.’

Therefore, thanks to the right of portability under the GDPR, these mixed datasets may be shared at a user’s behest, between competitors, further harnessing the river’s flow for the benefit of society[1]. There are constraints; it is not a free for all. The data portability obligations only apply to data controllers that process personal data based on customer consent or to perform a contract involving the data subject and if the processing takes place by ‘automated means’ (i.e. excluding paper files).

A river without banks is a flood. A river with a dam is a power source. This trend towards a harnessed, flow of data within a trusted ecosystem is likely to transform the financial services sector as we know it today.  

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Deloitte: Middle East organizations need to rethink their workforce in the wake of COVID-19

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Deloitte: Middle East organizations need to rethink their workforce in the wake of COVID-19 2

Organizations in the Middle East have had to take immediate actions in reaction to the COVID-19 pandemic, such as shifting to remote and virtual work, implementing new ways of working and redirecting the workforce on critical activities. According to Deloitte’s 10th annual 2020 Middle East Human Capital Trends report, “The social enterprise at work: Paradox as a path forward,” organizations now need to think about how to sustain these actions by embedding them into their organizational culture.

“COVID-19 has created a clarifying moment for work and the workforce. Organizations that expand their focus on worker well-being, from programs adjacent to work to designing well-being into the work itself, will help their workers not only feel their best but perform at their best. Doing so will strengthen the tie between well-being and organizational outcomes, drive meaningful work, and foster a greater sense of belonging overall,” said Ghassan Turqieh, Consulting Partner, Human Capital, Deloitte Middle East.

According to the Deloitte report, many organizations in the Middle East made quick arrangements to engage with employees in the wake of the pandemic through frequent communications, multiple webinars where senior leaders addressed employee concerns, virtual employee events, manager check-ins, periodic calls and other targeted interactions with the workforce.

The report also discussed how UAE and KSA governments have reexamined work policies and practices, amended regulations and introduced COVID-19 initiatives to support companies and the workforce in the public and private sectors. Flexible and remote working, team-building and engagement activities, well-ness programs, recognition awards and modern workspaces are among the many things that are now adding to the employee experience.

Key findings from the Deloitte global report include:

  • Only 17% of respondents are making significant investments in reskilling to support their AI strategy with only 12% using AI primarily to replace workers;
  • 27% of respondents have clear policies and practices to manage the ethical challenges resulting from the future of work despite 85% of respondents saying the future of work raises ethical challenges;
  • Three-quarters of leaders are expecting to source new skills and capabilities through reskilling, but only 45% are rewarding workers for the development of new skills; and
  • Only 45% of respondents are prepared or very prepared to take advantage of the alternative workforce to access key capabilities despite gig workers being likely to comprise 43% of the U.S. workforce this year according to the Bureau of Labor Statistics.

“Worker well-being is a top priority today, and similarly to the rest of the world, companies in the Middle East are focusing their efforts to redesign work around well-being by understanding workforce well-being needs,” said Rania Abu Shukur, Director, Human Capital, Consulting, Deloitte Middle East.

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One in five insurance customers saw an improvement in customer service over lockdown, research shows

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SAS research reveals that insurers improved their customer experience during lockdown

One in five insurance customers noted an improvement in their customer experience over lockdown, according to research conducted by SAS, the leader in analytics. This far outweighed the 11% of customers who felt it had deteriorated over the same period.

This is positive news for insurers during such challenging times, with 59% of customers also saying that they would pay more to buy or use products and services from any company that provided them with a good customer experience over lockdown.

The improvement in customer experience also coincides with a rise in the number of digital customers. Since the pandemic started, the number of insurance customers using a digital service or app has grown by 10%. Three-fifths (60%) of new users plan to continue using these digital services moving forward.

However, while the number of digital users grew over lockdown, half of the insurance customer base has not yet chosen to move to digital insurance apps or services.

Paul Ridge, Head of Insurance at SAS UK & Ireland, said:

“It’s impressive that there was a net improvement in customer experience during lockdown, despite the challenges the industry was facing with a transition to remote working and increased claims for things like cancelled holidays. While many were forced to wait on customer help lines for long periods, part of the improvement may be explained by even a small (10%) increase in the number of digital users.

“However, it’s clear that a huge number of customers are still yet to make the move online. It’s vital that insurers provide the most accurate, timely and relevant offerings to customers, and this is best achieved by having additional insight into online customer journeys so they can understand them better. Using analytics and AI, insurers can seize this opportunity to digitalise their customer experience and offer a more personalised approach.”

Meanwhile, for insurers that fail to offer a consistently satisfactory customer experience, the price could be severe. A third (33%) of customers claimed that they would ditch a company after just one poor experience. This number jumps to 90% for between one and five poor examples of customer service.

For more insight into how other industries across EMEA performed during lockdown, download the full report: Experience 2030: Has COVID-19 created a new kind of customer? 

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The power of superstar firms amid the pandemic: should regulators intervene?

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The power of superstar firms amid the pandemic: should regulators intervene? 4

By Professor Anton Korinek, Darden School of Business and Research Associate at the Oxford Future of Humanity Institute. Gosia Glinska, associate director of research impact, Batten Institute for Entrepreneurship and Innovation, Darden School of Business

Recent news that Apple hit a market cap of USD2 trillion highlights an extraordinary success story: A once struggling computer-maker on the verge of bankruptcy innovates its way to becoming the most valuable publicly traded company in the United States.

Apple’s 13-figure valuation is indicative of a larger trend that is not entirely benign — the rise of a handful of superstar firms that dominate the economy. Over the past three decades, advances in information technology, mainly the Internet, have supercharged the superstar phenomenon, allowing a small number of entrepreneurs and firms to serve a large market and reap outsize rewards. And COVID-19 has greatly accelerated the phenomenon by pushing us all into a more virtual world.

Apple — along with Amazon, Facebook, Google, Microsoft and Netflix — is a case in point. The combined market value of those six companies exceeds USD7 trillion, which accounts for more than a quarter of the entire S&P 500 index. Even amid the pandemic’s economic wreckage, these megacompanies continue to prosper. The combined share price for Apple and its five peers was up more than 43 percent this year, while the rest of the companies in the S&P 500 collectively lost about 4 percent.[1]

Superstar firms can be found in almost every sector of the economy, including tech, management, finance, sports and the music industry. They command increasing market power, which has consequences for technological, social and economic progress. It is, therefore, critical to understand how their advantages arose in the first place.

THE FORCES BEHIND THE SUPERSTAR PHENOMENON

The “economics of superstars” was first studied by the late University of Chicago economist Sherwin Rosen. Forty years ago, Rosen argued that certain new technologies would significantly enhance the productivity of talented workers, enabling superstars in any industry to greatly expand the scope of their market, while reducing market opportunities for everyone else.[2] Digital innovations, including advances in the collection, processing and transmission of information, is what Rosen envisioned would lead to the superstar phenomenon.

Digital technologies are information goods, which are different from the traditional, physical goods in the economy. What it means is that fundamentally different economic considerations apply. Unlike physical goods — a loaf of bread or a car — information goods have two key properties: They are non-rival and excludable. Non-rival means that something can be used without being used up. Excludability means that an owner of digital innovation can prevent others from using it, by protecting it with patents, for example. These two fundamental properties of information goods are what give rise to the superstar phenomenon.

In a working paper I co-authored with Professor Ding Xuan Ng at Johns Hopkins University[3], we described superstars as arising from digital innovations that require upfront fixed costs that allow firms to reduce the marginal costs of serving additional customers.[4] For example, once an online travel agency has programmed its website at a fixed cost, it can easily displace thousands of traditional travel agents without much additional effort, scaling at near-zero cost.

Because a firm can exclude others from using its digital innovation, it automatically gains market power. The innovator then uses that power to charge a mark-up and earn a monopoly rent — basically, a price superstars charge in excess of what it costs them to provide the good — which we call the ‘superstar profit share’.

THE POLICYMAKER’S DILEMMA

In a vibrant free market economy, businesses compete for customers by innovating and improving their offerings while keeping prices low; otherwise, they are displaced by more innovative rivals entering the market. Unfortunately, the increasing monopolization of the economy by technology superstars is weakening the competitive environment around the world.

Monopoly power is the main inefficiency from the emergence of superstar firms, because superstars can exclude others from using the innovation that they have developed.

So, what policy measures can be employed to mitigate the inefficiencies arising from the superstar phenomenon?

We do have antitrust policies designed to promote competition and hence economic efficiency. Authorities could take a drastic measure and break up monopolies. Or they could tax all those excess profits megacompanies make.

Another policy to consider involves giving consumers control rights over their data. Right now, only companies have that data, and they are selling it. If you free it up and don’t allow them to sell it anymore, it reduces their monopoly profits. And if you give consumers more freedom over their data, they could, for example, share it with the latest start-up and create a more competitive landscape.

However, such policy remedies can be a double-edged sword. On the one hand, they reduce monopoly rents. On the other hand, they can also reduce innovation.

Innovation requires investments in R&D, which represent a significant sunk cost that only large firms can afford. Government regulations can easily backfire, discouraging large firms from making long-term R&D investments.

What, then, is the best policy intervention? Professor Ding Xuan Ng and I believe that basic research should be public. Digital innovations should be financed by public investments and should be provided as free public goods to all. This would make the superstar phenomenon disappear, and the effects of digital innovation would simply show up as productivity increases.[5]

We live in a brave new world that is increasingly based on information. Because the information economy is different from the traditional economy, antitrust policy should be revamped to reflect that. Instead of worrying about the economy being eaten up by these gigantic monopolies, policymakers need to focus on the question ‘What specific actions can we pursue to make the economy more competitive and efficient?’

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