Oral evidence: The big data dilemma, HC 468Tuesday 28 October 2015

Oral evidence, 27 October 2015.

Witnesses

George Windsor, Senior Policy Researcher, Creative and Digital Economy, Nesta, Sue Daley, Head of Big Data, Cloud and Mobile, techUK, Dr Paul Feldman, Chief Executive, Jisc, and Chirdeep Chhabra, Senior Manager, Data Programmes, Digital Catapult, gave evidence.

Chair

Thank you so much for your patience. I am very grateful to you for waiting for us. I am afraid we are voting on the Welfare Reform Bill, as you can see. Perhaps we could leap right into some of the evidence we have received and start with some of the benefits of big data. The written evidence we have received from Nesta tells us that “data-driven companies are over 10% more productive than…firms that don’t exploit their data” and that data drives innovation growth in many sectors. Do you think the UK is making the most of these opportunities at the moment, or are there some key proposals that you think we should be taking up?

George Windsor

In the submission, we outline some of the benefits, including productivity as you mention, but the stakes for the whole of the UK economy cannot be underestimated. In our sample of firms, we estimate that if the companies that do not exploit their data for decision making were to behave like those that do, it would be associated with an overall 3% uplift in productivity for the whole economy, which is very significant. In previous research we showed that, for instance, the sorts of companies that exploit their data account for about 18% of all companies. It has impacts on profitability, productivity and return on equity. On average, there is a 4.3% higher return on equity, and profitability is about £3,180 higher than average. In terms of the UK’s position at the moment, a number of great initiatives are going on in the UK, but the landscape is still quite fragmented. A number of the recommendations we made are to try to foster a greater sense of collaboration between the organisations doing these sorts of things in order to avoid duplication and foster a more joined-up system. We made recommendations across schools, universities, the labour market and industry on how some of the skills gaps can be plugged. I can say more about that.

Chair

You have, very cleverly, taken me straight to what was to be my next question. techUK have put in an excellent submission covering the issues. One of the points that jumped out at me was the digital skills gap. You stated that 93% of companies find that the digital skills gap is affecting their commercial operations and recruitment, and it is costing the UK economy about £2 billion a year. You made various recommendations as to how that could be addressed. Do you think this is just part and parcel of the wider STEM skills gap, or is it a specific digital problem that the UK is not addressing in its wider drive to drive up skills and graduates?

Sue Daley

Thank you for the opportunity to come and speak to you today. We see the UK as being in a very good leading position to take advantage of big data and the opportunities it presents, but one issue we have raised is the current big data skills gap. You are right. Our submission gives a number of figures. I would like to add that 62% of techUK members have highlighted that there will be a significant gap in big data skills and an increase in big data roles in the next five years. We know there is a problem, and for the UK to continue to remain a leader in this field we need to act now to make sure that we have the right talent pool so that people are there to take advantage of big data jobs; 56,000 new jobs could be created by big data in the next few years. It is important to remember that, while big data skills are perhaps different from STEM, we have digital skills gaps simply because there is not really one job involved in delivering a big data strategy or solution. Data scientists have a very important role, and that has a lot of focus. The Government’s own independent Migration Advisory Committee has highlighted that we have a big data scientist skills gap, but there are many other roles involved in a big data supply chain, or providing a big data solution—from engineers, big data platform developers, data analysts and data scientists all the way up to data visualisation experts. We need to make sure we have the correct skills and people with the right talent at different stages so that organisations can take advantage of the big data opportunities all of us see today and tomorrow.

Chair

You did not quite answer the second bit of my question: are the Government strategies to deliver those tech and digital skills sufficient—are we going to get there—or is there something else they should be doing? Should the Government or industry be doing it? I added the second bit after you gave me time to think about it.

Sue Daley

There are two stages, to answer the first part of your question. We need to make sure that we have the right domestic talent pool, so ensuring that we have the right curriculums in place, and a computing curriculum, is very important. We have to make sure we have the right teachers who can teach the right skills that people need, so at domestic level we need to make sure we have the right talent pool. Obviously, Government is working on those aspects with the curriculum issues. The second aspect is to make sure that in the meantime organisations can get the right people with the right talents to fill the jobs they need right now. We need a smart migration policy to make sure that organisations can get the right people to fill the right jobs now. There are areas around the Government’s tier 2 visa scheme that need to be addressed to make sure organisations can get the right talent at the right time, particularly now, while we address the domestic pipeline issue.

Chirdeep Chhabra

I would like to rewind a little from that. While we talk about the skills gap, there is also opportunity with big data. The volume of data is pretty much doubling every year. Given that situation, we have yet to see enough sharing of data, whether it is personal or organisational data, between different companies—between different silos. That is the element that will create new opportunities and businesses. The skills to fill the gap are there, but we need to start off by enabling sharing of data between organisations. The previous panel talked about the framework of trust that is needed. We are looking at trust frameworks and at the friction in the sharing of data—the legal aspects, compliance and governance, that need to take place to share those datasets. If you do not do that, you will fail in building the next generation of big data companies. Today’s very large data companies—the Googles and Facebooks of the world—are all American. They collect huge amounts of data and then exploit it. For us to be able to get into that kind of situation for the next generation of data companies, we need to enable datasharing labs and trust frameworks so we can build an ecosystem around that.

Chair

Dr Feldman, Mr Windsor says we need to have various bits of infrastructure in place; Ms Daley says we need to fix our immigration system and that there is a skills gap; and Mr Chhabra says we need to address the trust deficit and infrastructure. Is there anything else on the list we need to address in order fully to utilise the big data opportunity, which I think we would agree is out there but there are some barriers in the way?

Dr Feldman

My particular focus is on the higher and further education space. We enable a lot of capability that will be coming down the train when it works its way through. We are not coming here to say there is something fundamentally broken in that space, but it is a timing issue; it is a question of people understanding what skills are needed, and then pump-priming to get them through and giving them the experience. We do our best to ensure they have the capabilities to learn when they are there.

Chair

Fantastic.

Chris Green

We often hear about the versatility and entrepreneurship of start-up businesses in particular and also of large ones. Dr Feldman, what are the main opportunities presented by big data for the UK economy? Is the UK well placed to take advantage of the opportunities presented?

Dr Feldman

It is certainly going to be better in the future than it is today. We are actively working to improve the infrastructure. We connect just about every university in the UK to each other in a whole range of commercial facilities, like Google, Amazon and Microsoft, as well as connecting them outside the UK. Fundamentally, we enable people in universities to access big data wherever it happens to be, along with giving them access to the high-performance computing they will need to process that data. We are also looking at how we can make that available to institutions or companies outside higher and further education. That is our remit. We are looking at how we can provide, in many ways, an income source to universities that have high-performance computing capability, and to SMEs and big business. We have just introduced the first of those with Rolls-Royce, giving them access to high-performance computing based on the backbone network that we provide.

Chris Green

The work going on at universities is contributing to the private sector in quite a big way.

Dr Feldman

Absolutely.

Chris Green

Mr Windsor, are there any particular skills gaps in the workforce that you see at the moment?

George Windsor

In research we have done recently, one report called “Skills of the Datavores”—datavores are companies that are highly data-driven, with highly data-driven decision making—identified that one of the key skills gaps was getting the right skills mix, having the technical, analytical and industry knowledge to exploit data. That demands excellence in core skills, like maths and stats, and embedding data skills in other disciplines and having hands-on domain experience to understand how to communicate with others in the business. To me, that is fundamentally different from STEM skills and quant skills in a couple of ways. It has multidisciplinarity, with all those things meshed into one. It is often referred to as a unicorn if it is one individual, but increasingly businesses are circumventing the problem of getting individuals who are miraculously endowed with all these skills by building up teams. The other thing is the location of data scientists in organisations, so that they are connecting the technical and analytical side with the decision makers. They need soft skills and the ability to communicate. It is not just a technician. A data scientist is a real all‑rounder who has to be able to communicate findings in a meaningful way to the business. The skills gaps lie in the right mix of skills. We make recommendations about three domains: schools are more about developing excellence in core skills; universities are developing that to a greater extent, embedding it in other subjects, but also seeking high-end data talent; and the labour market is about upskilling workers already in the workforce through CPD and other measures. We make specific recommendations, which I think are in the submission.

Chris Green

With the development of big data, in a few years’ time it will be interesting to see whether businesses can develop the right talent so that someone who is very analytical and good with data can progress through a company and get to a very senior position, perhaps even running a FTSE 100 company. Can you think of good examples of people who are in that position at the moment, or who are developing that kind of position?

George Windsor

As part of the research, we spoke with a number of different stakeholders across public bodies, but also with some private companies. For instance, we had on our panel Damian Kimmelman who is CEO of DueDil. I guess he is pretty much in that position. I cannot think of any other individuals, but he is very much an entrepreneur in a data-driven company that works with data. That is one good example. It is about embedding it alongside soft skills like communication and creativity, and if businesses empower their workers to play around with data and try to foster innovation within the company. It is also about entrepreneurialism. That is a key part of the soft skills that data scientists are going to need, to drive forward innovation within companies.

Chris Green

Ms Daley, we often think about the lack of STEM skills and our weaknesses in those areas. We have to do a great deal to develop those subjects. Do you think that if we bridge that gap and fulfil our needs in STEM subjects our concerns about having the required skills for big data will be met, or are additional qualities required on top of that?

Sue Daley

To go back to what I said previously, having the right talent pool for organisations to find the people they need to fill the roles will be critical. We need to remember that this is not just about graduates; it is also about people in the workforce, so it is about having the opportunity to upskill the workforce to make sure they have the right data skills they need to make the most of the opportunities of big data. I would take a step further back as well. I think the UK’s leadership role and where we are today, which is a very good place, is going to be enhanced and secured by making sure we have a culture of data confidence within organisations, and a recognition of the economic benefits and the driver for productivity, innovation and creativity that big data and data analytics can provide. That really needs to come from within organisations at board level. Board level buy-in and determination to make the most of big data is important, as well as bringing along employees—everybody within the organisation. As we all know, data has an impact on all of our lives, whether we are at work, on the move or outside. Everybody has a role to play in the way data can help an organisation run, so to build a culture of data confidence within organisations and make sure that staff have the right skills is important both for organisations to get the most out of big data and so that the UK’s current leadership is maintained and developed going forward.

Chris Green

It is really positive to hear that we are in a leadership position, despite often thinking that so much more needs to be done. I suppose the big public sector examples of the use of big data will raise that awareness, so that businesses are more familiar with it. Mr Chhabra, do you think the Government have a coherent strategy to develop the UK’s big data capability?

Chirdeep Chhabra

I think there is much more to be done. There are two aspects to big data. One is about looking at your own data and making sure your business is running better, or you are providing services better, or increasing production, with efficiency savings and so on. That is more internal-looking, but there is also the aspect of mixing data from different sources—silos of data—and that needs to happen more. That is where I think we need more initiatives and what we now call datasharing labs where we experiment with these things. How do we bring together some of these datasets to solve specific problems? That is where the biggest value of data will come from. We need to move more towards that opportunity; that is where the new data companies are going to come from. There is a whole discussion about personal data. A generation of personal data has already been exploited by the large companies, the Googles of the world, but the next generation will come about through citizens having more access to and control over their data. Younger citizens want more control over their data. If you look at what that will do to the next generation of data businesses, that is where the opportunity lies in terms of the UK trying to make sure it is at the forefront, building labs and frameworks to bring about trust and remove the friction in terms of governance, legal aspects and so on in the sharing of those datasets, so that security is also taken care of and we can talk about successes and are able to prove them.

Chris Green

Perhaps over time we should increasingly see data from health and other elements of government, combined with data from the private sector, being applied increasingly by bodies, public or private, and individuals having access as well, which is a suggestion we have heard several times.

Chirdeep Chhabra

Yes.

Chris Green

Is there a great deal more work to do on that, or are we almost there?

Chirdeep Chhabra

There is a lot of work to be done—a lot. It is also where the biggest opportunity is, and we need to take a greater leadership position in that.

Sue Daley

I suppose that is what makes big data so different.

Derek Thomas

Dr Feldman, you kindly referred to small and medium-size businesses. That is always good to hear. Would you say that the challenges and opportunities available to them through big data are different from those available to bigger business?

Dr Feldman

Not necessarily. The issue for SMEs is access to skills and the ability to afford them. Big business just has greater resources to do that, but in many ways SMEs will be a bit more fleet of foot, and possibly a bit more creative, in the way they use data. That is why we are trying to see how we can help SMEs to use university facilities a bit more, where they are free. There is nothing fundamentally different; it is more about whether they can get the capabilities they need to the level they need.

Derek Thomas

Is it a question of the cost attached to even accessing big data—whether they can afford it?

Dr Feldman

So much depends on the nature of the big data. A lot of is it is open data, increasingly so, where they are as able to get at it as big business. The data big business has that is private to them is the data they collect. Every second, Tesco collect an awful lot of data on us that they do not share with anybody; they have a great wealth of data, whereas an SME can have only the private data they can access or buy, and the buy is always a bit suspect. The availability of open data is where they can really make a difference in that sense.

Derek Thomas

Are we seeing much collaboration between smaller businesses and big businesses like Tesco?

Dr Feldman

I would not say collaboration; it is more about whether they can get contracts to help. That is where a lot of SMEs are fleet of foot and creative, and that is how they grow in many ways. I am sure people around me here have more to add on that.

Stella Creasy

The example of the mydata project answers a lot of the questions you have raised. That was an attempt to create standard portable and accessible information. Although it is my data, I cannot access anything meaningful from my energy company to share with other energy companies. That hampers consumers in accessing data, and it also hampers citizens in relation to any of the benefits you are talking about. Clearly, there are commercial disadvantages in sharing data because people can compete for your customers. It also means we can create new industries and jobs for people. How do we square those circles? Do you think that we as citizens need rights to our own data, to be able not just to take it from one company to another, but to share it en masse with a third party, say a new company, if the benefits of big data that you are talking about are to accrue to the public?

Dr Feldman

I am not sure I am qualified to answer that question.

Stella Creasy

Were you involved in the mydata project at all?

Dr Feldman

No, I was not.

Chirdeep Chhabra

I completely agree that there is a movement towards citizens being given more and more control over their data. If you look at the general data protection Act that is being discussed in the EU, it is interesting that that is the direction even the younger citizens of the world want. They want to have more control over their data. If that is so, we will end up in a situation where basically we have control and can give access for specific reasons to specific organisations. That brings about a new level playing field whereby you do not have organisations just scraping data off you. The reality is that in the doubling of data every two years, two thirds of that data is personal, and that is going to grow; there will be a lot of internet of things data and smart city data. A lot of it will be personalised.

Stella Creasy

There is data that is commercially useful and which will drive a lot of these industries. That is why companies do not want to share it. Obviously, it puts them at risk of loss. As consumers we do not have access to that data in any meaningful fashion. Do you think it will require legislation? For example, in Australia there is legislation on this. If I were an Australian citizen, I could request my data and share it with a third party; for example, a third party could negotiate a new service or industry on my behalf with an existing company, which we cannot do in this country right now. Do you think that is where we need to get to? Otherwise all the benefits from sharing that you are talking about—

Chair

We are running out of time. Can we have some quick answers, please?

Chirdeep Chhabra

It will definitely happen. It is bound to happen. That is our view.

Stella Creasy

Have you seen it happen in any other country without legislation?

Chirdeep Chhabra

Not yet.

Chair

The statement was just made that companies do not want to share data because it is commercially sensitive. Is that your experience? Is there a desire to share data, or is there a blanket desire not to share it? Do you think that is an accurate statement? Could you comment on that briefly before we move on?

Chirdeep Chhabra

That is an accurate statement. Some of the things we are doing are to create safe havens where organisations can bring their datasets together. They are not giving data to each other; of course, they will not do that for governance and business reasons, but organisations are realising more and more that they can only get benefit from their data by mixing it with other data outside to improve their supply chains. They are dependent on other industries too. There are no mechanisms today. There is a lot of friction in datasharing, in terms of legal governance and so on. That is where we need to take a lead. If we do, we will have many more such industries coming along.

Carol Monaghan

Dr Feldman, you talked about companies like supermarkets collecting data from customers. It is well known that that can be done with reward cards, and then marketing is targeted as a result. Are supermarkets at the moment collecting data from customers who are not using reward cards? Is that something of which we need to be aware?

Dr Feldman

I have no way of knowing that. Sorry.

Jim Dowd

The answer to that question is that they certainly collect data from credit card purchases. They know people’s spending patterns that way, not just from loyalty cards. Anyway, I will be brief; I am aware of the Chair’s exhortation about shortage of time. We discussed medical research earlier. What other areas of research do you think would benefit from big data? What other opportunities are there?

Sue Daley

There are opportunities for big data across all different sectors: media, finance and in particular sport, which is a key area for data analytics. A lot of sporting companies are working with academics to look at that. In terms of science, the Hadron collider creates about 16 million gigabytes of data a year. That is a huge amount of data. Data analytics and big data tools are helping scientists to unlock the mysteries of the universe. Perhaps that is useful to the Committee. That is another area where I definitely see big data in action right now.

Jim Dowd

Are UK universities well placed, and do they have the facilities, to exploit that?

Sue Daley

We have seen significant Government investment, which techUK has supported, in working with academics, not just in setting up the Turing Institute; we are working with the Harwell Centre in bringing industry and academia together in academic research. That has had a boost from the big data investment the Government brought, so we are well placed. The question now is what we do with that. How do we apply the insights and knowledge that can be gained from that kind of work to the wider society?

Jim Dowd

In your experience, are the universities and research institutes adapting their teaching methods to encourage students to understand the opportunities provided by big data?

Sue Daley

It is probably for others to answer that. What we have found works really well is where industry and academia come together and work together to engage and collaborate early in the process, so that students can see the big data opportunities out there throughout their careers, but it is probably for others to answer that question.

Jim Dowd

Does anybody else want to answer that?

Dr Feldman

I could come back on a couple of the questions you asked. Universities are getting a lot of the investment they need; for example, we will connect universities to the Hadron collider and the Harwell Centre.

Jim Dowd

Are they getting enough?

Dr Feldman

Can you ever get enough in that space? They would always say they want more. A lot of money is going into the space. The key thing is that you have facilities like the Hadron collider, and a key part is that the universities wherever they reside need to be able to access those. The UK has certainly invested to ensure that that happens. That is the key advantage we have over most countries, and we should glory in it, in that sense.

Matt Warman

Coming back to skills, how can we ensure that young people are empowered partly to make sure they understand that this is their data and they should have a right to see it, but also so that they have the enthusiasm to want to work with it, from schools right up to universities?

Sue Daley

We have a great opportunity to bring understanding that data has an impact on our lives, on every aspect of our lives, and the younger generation will know that more than any other generation ever. We need to address it in schools and help build a culture of data confidence in schools and then build it up from there so that young people understand the role of their data and gain confidence in how to use it. There is also a good opportunity to rebalance the public debate and talk about the good uses of data and how data positively impacts on all our daily or digital lives. The more we can raise awareness and perhaps promote the good uses of data, and how important it is in terms of driving our digital economy, the more we will encourage young people—from my point of view, particularly girls—to get involved in this industry and the more we will build a UK society that understands the power of data and what it can do and, therefore, is part of the data journey we are all on.

Dr Feldman

As an example of how two of these things come together, we are piloting with universities a concept called learning analytics, which is taking the data we can capture about students at university, making it available to them and looking at patterns. There are examples, both in the UK and elsewhere, of being able to predict from that the success or otherwise of students, and to plan interventions. We imagine that over time it will go into their school records and back through their lives. That has to be made available to students. They will understand the data from a comparatively younger age than perhaps they think about it now, and will see the impact of data on their lives and learning. We need to help them understand how that can be of positive value to them to help them succeed.

Matt Warman

Does this tap into the point Mr Chhabra made earlier about the inevitability of data opening up if we can embed it into curricula and younger people’s lives?

Dr Feldman

Absolutely. If you embed it into people’s lives, suddenly we all understand the pros and cons of data and become much more savvy about what data means to us, and what we share and protect.

Chirdeep Chhabra

We are data-driven anyway. The apps we all use, even to travel on the London underground, crunch huge amounts of data and there will be a huge amount of productive analytics from them too. It is about bringing to the fore exactly how everybody is using that.

George Windsor

One particular recommendation we made was around embedding data analytics in other subjects. One really good example of where this is happening is the Urban Data School in Milton Keynes. They are using local data. Obviously, it works in Milton Keynes because it has a lot of sensor data—transport data; it is a smart city. They are embedding data that is meaningful to students within other disciplines. It might be for geography, so they look at meteorological data that is meaningful to them. They know that last week it rained heavily. Why is that? They explore and visualise those data. That is one way of trying to embed a sense of passion in young people about working with data. Coupled with that, it is providing better information about career prospects in this field at a young age. The Tech Partnership is doing great work on this. For instance, their tech futures programme includes tech careers, tech for girls and those sorts of things. We need that to be scaled up, and it needs to be more specific to data.

Matt Warman

Briefly, what should Government be doing to make that happen more?

Sue Daley

I would point briefly to the very good example of Nesta to make it clear that not all big data is personal data. Obviously, weather data is not personal data. Not all the data analytics involved in big data are to do with personal data. It is important to remember that there are different types of data. I am happy to provide the Committee with more details on that, if it would like them. As to what the Government need to do, we need a joined-up approach and to make sure that we address the skills gap and have the right skills talent. We need to rebalance, and have the right public debate about big data so that we can move forward and, by doing so, address the trust and confidence issues we have about data. We have a great opportunity and the UK is in a brilliant position, but we need a future vision. Looking forward, one of our recommendations was to have a long-term strategy as to where the UK is going. How can we build on where we are now and make sure that our future is just as bright as today in terms of big data and the opportunities?

Dr Feldman

One of the ways we hope to do that is through a data skills taskforce. One of the recommendations in our report “Analytic Britain” was for a cross-cutting taskforce, and we are going to convene a meeting on 11 November, which will include the likes of techUK, the Digital Catapult, the Tech Partnership, the UKCES and others to discuss some of the skills issues and where we can try to plug skills gaps.

Chair

We started this session by questioning how we close the trust deficit. I have a statistic from techUK’s submission, which said, “cyber-attacks cost UK businesses £34 billion per year”. We have had TalkTalk this week. I also have Digital Catapult’s “Trust in Personal Data” review. I was struck by one particular statistic, which is that in terms of dataholders the public have most trust in the Government and banks. They are at 40%ish, and everybody else—all private sector holders—is down under 5%. I find that extraordinary given that we blame the banks for the financial crisis and the Government is full of politicians who are the least trusted people in the world, apparently. What is it that Government and banks are doing that is different from the rest of the private sector and leads to that huge disparity in trust levels in data collection?

Chirdeep Chhabra

When we look at what the Government and maybe the banks do with our data, the element we do not hear about is banks losing our data every now and then. We know that retailers collect a lot of personal data, but they do not tell us what they do with it, so there is no transparency around what is done with that data. Although we know that the cards people use in Tesco and so on collect data, we have no access to any of that. The same thing applies to NHS data, which the last panel talked about. While we know that the data is about us, we have no access to it. Those are some of the elements that are in question. There is a trust deficit, and for companies like Tesco and other retailers it is much higher because they are using our data, but at the same time there is no transparency or access control over how—

Chair

Is there more transparency with what the NHS is doing with our data?

Chirdeep Chhabra

Yes. But you do not hear about the NHS losing the data every now and then.

Chair

Care.data caused a huge drama. We have had HMRC scandals and all sorts of others. There have been lots of scandals, but for some reason there is much more trust—a dramatic difference: a 35% difference—in public sector holders of data and banks as holders of data. Have you done any research as to why there is that specific gap, because that is something we would want to try to understand quite urgently?

Chirdeep Chhabra

I will make sure I get some answers back on that. My colleague was leading that effort. I will make sure we report back on that.

Chair

That would be super. The report was my weekend reading. I was fascinated. Thank you very much, panel. You have given us a lot to think about. I hope you feel that as our inquiry continues we are contributing to an important national drive to make the most of big data opportunities. Examination of Witnesses

Witnesses

Richard Woolhouse, Chief Economist and Head of Research and Strategy, British Bankers Association, James Meekings, Co-Founder and UK Managing Director, Funding Circle, and Imran Gulamhuseinwala, Partner, Ernst & Young, gave evidence.

Chair

Welcome, and thank you for joining us. We have invited you here as a FinTech panel, particularly because the Government have identified FinTech and the development of commercialisation of new financial business models and disruptive innovation as a key area for growth. We think that intersects very significantly with the big data inquiry. I do not know whether you were listening to the end of the evidence we received from Digital Catapult, which was that, even though there is a huge public trust deficit in the gathering of data, for some reason the public trust the public sector and banks far more than they trust all other private sector organisations in terms of data collection, to the order of 40% trust in the public sector and banks and under 5% for all other data collectors. Do any of you have an idea why that might be?

Richard Woolhouse

Maybe it is the long history of collecting data. Banks have much more experience and have been doing it for many more decades than perhaps other sectors. I don’t know; I have never seen any research on it.

James Meekings

Arguably, there is greater regulation of financial services than some other parts of the private sector and that helps to give them confidence and creates blueprints for companies to gather and store data—how they use it and transfer it and so on. Maybe that pushes through to how consumers understand that their data will be used. As a young company in financial services, I know that our customers have lots of questions about how their data are used and stored, which is probably different from older financial services. If you ran the same survey with us, probably people would be less than 40% more trusting. It is probably different segments within the market.

Chair

That is interesting.

Imran Gulamhuseinwala

I am not able to speak about the level of trust outside financial services or the FinTech sector. One of the things we notice when we speak to customers of our large clients is that they are very much behaviourally in a mode where, if something goes wrong with the banking relationship, the bank will make good financially. We think they take that mindset across from the financial make-whole to the data make-whole. There is not a great deal of evidence to suggest why that would be the case, but it creates a level of comfort in the mind of the underlying consumer. On James’s point, I would be surprised if the FinTech community, which is much more about newer companies that do not have the same level of state support, had that level of trust. It can take a very long time to build up. One of the things we spend a lot of time thinking about is the level of adoption among the FinTech community, and confidence around data is one of the issues raised.

Chair

Given there is this trust deficit and it is playing a significant role in big data and its success, and in the sharing of data between companies as well, to what extent will big data be a factor in the expansion and success of the UK FinTech sector?

Imran Gulamhuseinwala

If I take a step back and think about the role of data in the FinTech space, our research analysis has found that it is absolutely critical. There are three or four enablers to FinTech. We do not need to spend time here talking about the supply side enablers, but on the demand side the key area around adoption seems to be the ability for consumers conveniently to share their data with some of the FinTechs and be confident that their data will be looked after in a trustworthy way. If you like, we can spend a bit of time talking about the lots of different ways in which FinTechs and banks can utilise data, but the fundamental issue about whether, if the data is sent across, it is a trustworthy source is one of the key determinants of adoption.

James Meekings

Funding Circle is a technology platform which connects investors and businesses over the internet. Our role is to provide that platform but also to help understand the risk of different businesses so investors understand what the expected losses would be from those loans. The role of data in that process is for us to understand the risk and help inform the human underwriters who look at those loans. It is critical for our business, because the better we get at it and the more data we have to do it, the fairer the price is for small businesses, and therefore we can help small businesses. The competitive edge is huge as well, because it allows us to get more customers, build better datasets, because we have more data, and spend more on marketing. As a reinforcing cycle, data enables players to become better and better, which you probably do not get in any other industry. Our whole product is a technology platform that prices risk, which is enabled by data.

Chair

As you build those bigger and bigger datasets which interact with each other and you understand the risks more and more, how does the consumer understand the risks more and more?

James Meekings

We believe in complete transparency. Unlike a bank, on Funding Circle you can download the whole loan book. You can see every single loan we have done; you can see its status, whether it is repaying or not and so on. As we get more data, we publish it to the market. That allows every customer to have scrutiny of us; obviously, not every customer does that, but a level of people do. In financial services, when companies have data there is a big question about how much of it should be transparent and released to people. That is not to say everyone is fully informed and understands it, but it allows scrutiny of the industry and therefore makes sure that practices are right. As we develop, our commitment is to carry on publishing that data, making sure we show people who are putting their money in that this is our expected loss rate, which we predict, and this is what we actually have achieved. We can only do that by being fully transparent with data.

Chair

How common is that practice among your FinTech peers?

James Meekings

I can only speak for the lending industry because that is where we are based. We have a trade body called the Peer-to-Peer Finance Association, which sits on top of formal regulation by the FCA, and in that we have certain criteria for membership. One of those criteria is: publish all your data for everyone to see. We think that is incredibly important. In an industry where it is not us but the investors taking the credit risk, that exchange mechanism can work only if we give as much data as we can to those investors.

Dr Mathias

Can you tell us a little more about Funding Circle and the partnership with British Business Bank Investments and how that came about?

James Meekings

Two or three years ago we engaged with Government on a number of requests. One of those was helping Funding Circle grow to allow us to take more institutional capital on board. One way of our doing that was to have all of us in a room with the Government as taxpayers lending through Funding Circle. To date, the Government have committed about £60 million and they are earning 7% on it, so we should all be relatively happy with that today. It has been a good thing for industry because Business Bank has to do due diligence on the process, understand how we do credit and so on. It has been very positive.

Dr Mathias

Has the Financial Conduct Authority made any difference to your business?

James Meekings

Yes. For everyone in the room who does not know, peer-to-peer lending is getting regulated at the moment. We have just submitted our authorisation. It is the right time for this to happen in the industry. We have always wanted it to become regulated. In excess of £1 billion is going through these platforms on a yearly basis, so it has to be regulated.

Jim Dowd

Perhaps Mr Meekings is best able to answer this. Is there a difference in the way new SMEs and start-ups use big data compared with the more traditional financial institutions?

James Meekings

Different companies use different datasets, but speaking for ourselves, we use the same underlying data as banks. We use data from Experian, Equifax and credit bureaux and mix that up with the data we request from our businesses when they apply for a loan. The underlying data is pretty much the same. It is what we do with it. Within a bank, banks use data in different ways for different types of customers. In the consumer world, banks are very automated and are quite advanced in how they use data. On the business side, they are not. We are using techniques that banks use but we are using them for customer services that banks do not use them for, if that makes sense. In a way, what we do is tried and tested, but it is being applied to a new customer set, allowing us to help more small businesses across the country.

Jim Dowd

Does that provide a better customer experience, or does it just fit your economic model?

James Meekings

In my slightly biased view, I think it does provide a much better experience. The most important thing for small businesses is being able to get on with running their business. They want to be able to run things quickly. Being able to apply for a loan online, speak to someone over the phone and get it done within a matter of hours is a much better experience than going through a two-month process with a bank.

Jim Dowd

Do peer-to-peer lending networks have the potential to disrupt the traditional operations of the banks, or is that your objective?

James Meekings

I certainly think we do. I think we are complementary at the same time. We have many partnerships with banks. There are certain types of loans we can do because of our risk appetite, or our investors’ risk appetite, that banks would not want to do. We are competitors on one side and complementers on another.

Jim Dowd

In our first session—I do not know whether you were here—we looked at medical data and people’s sensitivity about that. Surely, the same thing applies to people’s personal financial information. Some would say it is more important to them than their medical history. Are there implications for the FinTech industry in that?

James Meekings

There could be. Speaking for Funding Circle, we believe that if people are lending their own money they are entitled to understand the risk. We cannot pass on to investors every bit of information we take. For example, we cannot pass on to investors company director information because it is personal, but everything that we can pass on we believe we should, because ultimately it is people’s money that is being lent.

Jim Dowd

Mr Woolhouse, do you have any observations on those questions?

Richard Woolhouse

I very much agree with James’s point that there are complementarities between the banks and some of the alternative lenders. They have referral arrangements. It is a segment of the market that is growing very quickly; it is growing at about 100% a year and it is about £1 billion. It is still small compared with the aggregate stock of SME loans in the economy, which is a couple of hundred billion pounds, but it is providing a complementary function too. The other point to note is that we have seen a slight shift in demand patterns in terms of SME lending space. There is an expansion of net lending to mid-size firms, whereas for the S-s it is a bit flatter in terms of the net lending profile. That probably reflects the fact that there are other sometimes complementary or alternative providers who are able to fill the gap, given how the post-crisis regulatory landscape has changed the economics of some of those businesses.

Imran Gulamhuseinwala

One of your questions was about how banks view data versus how the FinTechs do. A reflection from my organisation would be that the banks are not using the data in anywhere near as creative a manner and from as many alternative sources as the broader FinTech community. I am talking about the broader FinTech community rather than James’s specific segment. To give you an example, historically the banks organised their businesses around products, so they find it quite hard to move data between the different product silos. You probably have some familiarity with it when your bank does not know your credit card information on the mortgage side and vice versa, whereas the FinTechs have very much started with a clean piece of paper and are using information data from as many different sources as they possibly can. They are using unstructured and social media data, sometimes to help with refining the product proposition, but often to help with client segmentation or client acquisition, and sometimes to improve the overall client journey. Part of the reason they have done that is that many of them thought of themselves as technology companies at the outset. The other part is that there is data asymmetry between the FinTech community and the incumbent banking community, and that often lies around the current account information at both the consumer and the SME level. It is very much the case that the FinTechs do not have access to that data, so they are trying to create a picture from a variety of different sources of data, of which there has been an explosion through mobile social media and so on.

Chair

In your report, you say that the UK has a leadership position in peer-to-peer lending, and that we are strong in emergent FinTech but poorly represented in traditional FinTech. Why is there that separation?

Imran Gulamhuseinwala

There are a couple of pieces to that. The UK benefits enormously from some underlying factors that have proved very attractive to new FinTech—emergent FinTech. On the demand side, it is the quality of the underlying market. You have consumers with high levels of connectivity, penetration of smartphones and so on, high wealth and high adoption of non‑financial services: for example, online products, e-commerce and so on. And of course you have the City of London. A combination of those two means it is a very interesting market to be in. When you add to that the fact that the regulator, by which I mean the FCA, has been rather helpful in fostering innovation within the FinTech community, through initiatives such as Project Innovate, you have a very interesting combination of factors. London itself is also an interesting talent hub, where you have both technology and financial services in the same place, unlike the US where they are split on either side of the country, and increasingly there is the willingness of private capital, particularly VC, to come across.

Stella Creasy

I have two topics or questions that I want to put to all three of you. We talked a bit at the beginning about the high trust in the banking industry. Given that you are more likely in your life to be a victim of fraud, if not crime, online than you are offline, do you think that is merited?

Richard Woolhouse

I do not know. That is a difficult question.

Stella Creasy

One of the challenges we have talked about in the Committee today and previously is that at the moment data breaches are a civil penalty. There would be quite a reputational risk for banks were there to be a persistent level of fraud. Therefore, there is a commercial advantage in reporting it, as opposed to addressing the concerns people might have or the financial consequences for people. Do you think we need to change the way we do data protection in this country to create a more secure and honest environment when there are data breaches?

Richard Woolhouse

A lot of co‑operation occurs both between banks and between the banks and the authorities around cyber-attacks and financial crime. There is an obvious balance to be struck between the ability to protect an individual’s data privacy and the ability of banks effectively to monitor financial crime by sharing data and talking to each other. The concerns about some of the European directives are that that will be constrained, but an enormous amount of work is done between the banks and between the banks and the authorities. We have seen recently that, in order to secure banking data, that needs to happen across all sectors of the economy, so it is not just a specific issue about safety in the banking system.

Stella Creasy

The flip side of that is the mydata project. The one place where they made progress was around financial services and the standardisation of data. I want to ask you, Imran, about the client journey. As we get to a point where there is sharing of data that allows me to move my bank account and have confidence in the banking system, is there also a case for moving all the data that come with that account? If that is what banks are going to make decisions on in future, my ability to access a good deal will be influenced not just by the data you hold formally on my account but by the other information on which you may have based a decision about whether to lend to me. What are the implications for consumers on that basis?

Imran Gulamhuseinwala

To start with the first question, I am wandering into the realms of Papal Economics and so on, where you get the sense that a new social contract needs to be constructed around data that does not sit well with our typical categorisation of industry sectors. Yes, I can see the situation that you are more likely to suffer from fraud online. When I look around—I do not have the data to back this up—the majority of it is happening in non‑financial services in online marketplaces, online billing and the secure custody of passwords and credit card information.

Stella Creasy

The reality is that it is everywhere, but the third question I come to is whether we should have more honest reporting about when there have been data breaches and what data has been breached, because banks are creating bigger datasets. What rights do you have as a consumer to that information?

Imran Gulamhuseinwala

I agree that there needs to be almost a new taxonomy for consumers to understand this. I feel quite strongly that Government has a role to play in terms of consumer and SME awareness. A couple of things are happening that make this, in our view, inevitable. One is PSD2—the payment services directive—which puts payment initiation very much in the hands of third-party payment providers, so there will be another level of potential intermediary that may not be a recognised financial services brand, and actually may not even be a financial services regulated entity in the traditional sense of a deposit-regulated entity. It will be sitting in and among the ecosystem, so consumers will find it very hard to understand which particular entity is responsible for what at any point in time. Very soon you lose the opportunity for them to say, “I trust financial services but I do not trust e-commerce.” It is all blending together, and that is one of our big observations. One of the things FinTech is doing is forcing industry conversion across all those different verticals, and allowing people like Uber, frankly, to offer payment services without having any bank associated with it at any point in the customer journey. For the benefit of the Committee, I should point out that I am on the steering committee of the open bank working group which is addressing some of these issues from a specific banking consumer and SME point of view. It is far too early to talk about any of the findings of that particular group. Mydata has been talked about within that context. There is a broad feeling that mydata has been a very interesting, robust first step in enabling consumers to understand that they have transaction level data; it belongs to them and they can also use it for their own benefit. Mydata has a very narrow use case which is about trying to shop around for the best current account. None the less, it feels that it is beginning to move in that direction. Adoption of mydata is very low—a point you referenced—largely because, it is fair to say, it is incredibly inconvenient.

Richard Woolhouse

The other day nearly every other transaction was blacked out as well. It may have had something to do with who owns it.

Stella Creasy

Given where we are going with data and the huge opportunities that come with it, but also given the issues around security and lack of clarity about whether it is a civil or criminal issue when things do go wrong, and given the difficulties for the consumer—I was very struck, Imran, when you talked about the client journey and how banks are using social media; I am not sure my residents would know that perhaps their social media postings were being used by their banks, or even supermarkets, to make decisions about selling to them—do you think there are rights or particular powers consumers themselves should have to drive a new market in these industries? James, this may also be a question for you; I don’t know if you are cutting across that in terms of your customers. Would it also offer them a protection that at the moment they do not have, either because people do not understand what they can do with their data or because the company, when you start to negotiate with them, does not offer you the data but finds ways round it because it is not commercially advantageous to them to share this kind of information with people?

James Meekings

My view is that data help us get more small businesses cheaper loans.

Stella Creasy

Sure. But should your customers have a right to request data from you in a particular format that is portable and transferable to a third party across the board? That would include all the data, and they would also be told, for example, if you are going to look at their Twitter feeds when you make decisions around loans or mortgages, for example.

James Meekings

In my view, yes, because it is about transparency and who owns that information. I think people should be able to use that information. In your example of people using mydata to switch credit cards or current accounts, you have a perverse situation where the people who have high costs and most need to switch are probably in overdraft, and by switching without any data they get the worst rates. You have a perverse situation where no one uses it because of that downward spiral.

Richard Woolhouse

Current accounts are not a great example because you are switching between products that are essentially pretty similar and free, with some exceptions. They are not actually free, but they appear to be. It is different from an energy bill where you will save £80 or £100.

Stella Creasy

But for your industry it has some commercial advantage in that you can compete for other companies’ business, but there is a commercial disadvantage to having datasharing, which is one of the reasons why mydata has not worked. The lesson for us in the broader use of big data is that, if we want all these benefits, what rights do we need to give to citizens or consumers that would drive some of this, because there is not necessarily as much industry interest in it as we might think?

Richard Woolhouse

In the SME space a lot of data sharing goes on. Credit scoring affects decisions.

James Meekings

Yes.

Richard Woolhouse

But those are all voluntary arrangements between different participants in the marketplace.

Stella Creasy

Credit scoring is a great example. I know we are going to come to that. It is why Wonga and all those companies did not do credit sharing. It was not in their interests to feed into that industry, and as a consequence banks were lending to people who were in debt.

James Meekings

It becomes a very interesting challenge. You have credit bureaux where anyone can access the data, and then you have other companies sourcing lots of different bits of data because they currently cannot get it from the banks. Once they have done all that clever work, does it become their IP? The underlying data is not theirs, but the process of getting it is. It is a really complex issue.

Chair

Thankfully, that leads us perfectly to Derek Thomas and the final area.

Derek Thomas

We are going to finish with new ethical challenges—a light-hearted subject. Would you say there are ethical challenges for the financial technology community, as opposed to the long-standing traditional financial services?

James Meekings

Ultimately, we all sit within financial services, so I would not expect there to be any difference. If we are gathering data and using it, we should be treated in the same way as banks, and banks should be treated in the same way as us. I cannot imagine there would be a different ethical stance between newer players and traditional ones.

Derek Thomas

In terms of how people access the services you provide, it is slightly different from going into a bank. For example, if I was a vulnerable person, maybe someone with a learning disability, would I have the same access to your services, and would you have greater ethical challenges, as opposed to if I just went into a high street bank or some other more traditional service?

James Meekings

It is true that there are fewer ways to access us. We still have a phone-based system and online as well. I do not see a significant challenge that I am concerned about at the moment. I will probably have to give the question a bit more thought.

Imran Gulamhuseinwala

Could I ask you to repeat the question?

Derek Thomas

Basically, what we are asking is whether, in terms of ethical challenge, there are new ethical challenges that present themselves to your sector or your community—the financial technology community—that might not exist for standard traditional banks that may be situated in the high street.

James Meekings

You can see us all struggling.

Imran Gulamhuseinwala

The question posed earlier is probably as close as I have seen to that. For example, iwoca provides working capital finance to businesses—sorry, that’s another competitor of yours—and uses a lot of revenue data from, say, Amazon. They pull that down, but they use it to provide a service, effectively, lending in real time. You could make the argument that if they start using social media or Twitter feeds and find something disparaging about an owner, perhaps they will begin to factor that into their thinking. I do not know that the banks are not doing that, frankly, themselves; employers are. There is certain information in the form of data in the public domain already that has not been initiated by a financial institution. It is out there, and the financial institution, FinTech or incumbent, may choose to use that as part of their overall algorithm for writing safer, more profitable business.

Derek Thomas

In terms of access to social media and my online existence and whether or not that makes me creditworthy, do we need greater legislation? Do we need some clarity? Would an individual, or a younger person, even know that that might be looked at in terms of whether they are creditworthy?

Imran Gulamhuseinwala

On the social contract point, consumer awareness needs to be understood, so that when you put things on those kinds of sites that is the public domain, at least as far as this Committee views that information. There is an incredibly significant practical issue, which is that because we do not have an aggregated sense of identity it is incredibly hard to know. If, say, you came to me as an incumbent financial institution and I decided to look at your Twitter handle to see the kind of stuff you post, I might find 15 different Derek Thomases out there. I am not sure which one it is, but because I am trying to run very quickly and am processing thousands and thousands of things I just take the top five, for example. You can imagine doing something like that and trying to get meaning out of it. If you are not one of the top five, that would be an unfair representation of your data, but I do not see that as an ethical situation that anyone has tried to create; I see it as a problem of identity within the UK.

Derek Thomas

It is not necessarily unique to your sector.

Imran Gulamhuseinwala

Absolutely.

James Meekings

For most companies that do it, when you log into Kabbage or iwoca, you are creating a social contract at that point, so the question would be whether people are aware of that when they start logging in to get a loan. You would think they would be. In relation to Twitter, there are 20,000 businesses registered on our site, so there is no way we would know what their Twitter handles are, because they are just random things.

Chair

I think we are getting a big hung up on Twitter and the social media point. What is behind this, as Stella Creasy said, is that Wonga is an example of a company which used algorithmic credit ratings and turned round very fast judgments, and we have all seen the headlines about the consequences that followed. I think it is disingenuous to say this is not a new problem and that it is not a different environment from traditional banks where a longer process is followed, often with face-to-face interviews. What I am trying to understand is what processes are put in place to try to monitor and address the obvious ethical challenges that arise when you are using an algorithm to assess somebody’s life.

Stella Creasy

I do not think it is so much the algorithm that is the challenge as the source data. You have the capacity to gather large amounts of information in a way that 20 or 30 years ago you did not. Should a consumer know or have a right to withhold it and say, “You cannot make a judgment about my eligibility for a mortgage based on what I tweet”? That is coming, and it is something investment companies and others do. We talked about Tesco earlier. Tesco collects information from your Facebook and uses that to market and target; Google does it. The information—the potential—is there. What we are trying to get at is should we, as we progress, have laws or protection for consumers from the consequences of that, because there is a disparity in understanding that it is happening?

James Meekings

My view is that it has to be clear and transparent to the consumer when they are signing up to these sites what it could be used for. Then they can make the decision at that point, as opposed to a law saying they cannot do it.

Stella Creasy

Do you sell on data?

James Meekings

No.

Imran Gulamhuseinwala

Certainly FinTech businesses do that. Monetisation of data is a core pillar of some of the economic models in some situations. What FinTechs tend to be at the moment are very monoline product providers; they tend to get a lot of business that they then need to reject because they cannot deal with it. That is absolutely fine; it happens in lots of different online models, but they can resell those leads and package them up. Yes, that can be part of it.

Stella Creasy

Do you think that protection needs to come in? I take your point about consumers: buyer beware that you are buying a product. What we are surprised about is the extent to which this can be done. It is done for marketing purposes at the moment, but it is not without plausibility that it could be used at a more granular level to make better decisions. At what point do we step in and say that, for example, consumers must be informed that their data are being sold on, or that they must be informed that their social media profile is being used as part of the decision-making process? We do not have those laws at the moment because it is not something people have ever dealt with before.

Imran Gulamhuseinwala

I think it makes sense.

Matt Warman

In a practical sense, is it remotely possible that we could ever enforce a world where you—plural—are not allowed to use publicly available data? It seems pie in the sky to me.

James Meekings

It is a question of whether we are not allowed to use it or whether it is clear to the customer when it does get used.

Matt Warman

Obviously, it is in your interest to be transparent, but it does not matter whether we think you should not be doing it; you are not going to stop.

James Meekings

That is why you would have to think about the source of the data. Is it behind a wall, or is there some way of dealing with it out there? You might have some nice people like us who say we are not going to do it, but some would.

Imran Gulamhuseinwala

For example, one of the things Wonga did that was a key determinant in their algorithm was to time how long it took someone to fill in an application form. If you did it too quickly it probably meant you were looking at three or four different sites; if you did it too slowly, it meant you were too unsure. Would you say that is a third-party piece of information? I make that point just to show how creative some businesses can be in how they think about data. It is so fast moving that it will be very hard to create a long list of public data repositories that people use. There will always be the next thing. For example, telematics in the insurance industry is all about, frankly, a contract about sharing data on driver behaviour, timings and usage. That is another classic example. That will be augmented with other information: for example, road signs. I can see that you are driving at 40, but were you doing it in a 60 mph limit or a 30 mph limit? That is the third-party piece you are sucking in. The list could go on and on.

Chair

We could probably discuss this all evening, but I am afraid we have come to the end of the session. Thank you so much for the evidence you have given. It has been really helpful and interesting, and we will probably write to you for specific technical detail as we go along. That brings this session to an end. Thank you very much. Oral evidence: The big data dilemma, HC 468 21