In late October, the Consumer Finance Protection Bureau (CFPB) put out a call for comment on the Dodd-Frank Act Section 1033, looking for input to drive clarifying rulemaking on the act’s language calling for banks to make available consumer information on request from the consumer. In Europe, similar language was part of the PSD2, and led to a new standard in open banking – but in the U.S., changes have been slower to materialize.
Open banking, broadly speaking, refers to a movement to push banks to open up their data to consumers, to be shared out as they see fit – including to FinTechs. In practice, open banking could be used in the U.S. to power API-integrations with third parties for everything from wealth management to loan matching, but in the face of continuing unclear regulations, getting many of these projects moving has proven a spotty and uneven process.
That could change with this call for comment, and a European model could provide a framework for moving forward. Speakers at the FinTEx November seminar held a discussion into just that question.
“We’ve learned a whole lot about regulation, about policy, about competition standards, and the rest,” said Daniel Globerson, Head of Open Banking at the Royal Bank of Scotland. “We’re at the crosshairs of regulation here. From a European perspective, that started with PSD2. Open banking was a component of that, with a demand for banks to open up to consumers. In the U.K., we’ve supercharged that.”
That implementation has not been without its hurdles; despite the sea change in use cases it could power, building open banking capabilities requires a great deal of technology and proficiency on the part of financial providers. And for many U.S. banks, there’s some catching up to be done.
“The Dodd-Frank Action, Section 1033, has been the law of the land for ten years,” said Brian Costello, Vice President of Data Strategy and Strategic Solutions at Envestnet Yodlee. “The customer’s data is meant to be available to them via electronic means. If the banks had taken the European view of that, they might have taken this as a fantastic opportunity to take these regulations and build on them. The fact we have to have additional rules in the U.S. kind of says that not every provider did that.”
Indeed, potential rulemaking by the CFPB along the lines of open banking and data availability in the U.S. has stirred controversy for some years.
Moving to a fuller open banking landscape requires, fundamentally, a shift from financial institutions tolerating access to data – which is already going on in some pilot programs at some banks – to actively taking a role in facilitating it. That shift will bring with it new risks in terms of liability, reputation, and the bottom line, however, and overcoming those concerns will ultimately require a baseline set of regulations. In the current climate, most FinTechs achieve access through an agreement with individual banks. These agreements can vary wildly from fintech to fintech and from provider to provider and ultimately cannot scale to meet the demands of a national marketplace.
“Without standard protocols, there’s too much variance,” said Dara Tarkowski, Founder and Managing Partner at Chicago-based Actuate Law, and Chief Innovation Strategist at RegTech company Quointec. “God bless America and the freedom of contract, but when there are two parties negotiating for things they want, neither a provider nor a FinTech can do so consistently. They constantly have to tweak and do things for specific contractual obligations, as opposed to consistent regulatory certainty. With regulation, that’s just what the rules are, and everyone has to follow them. It sidesteps the machinations and negotiations.
“Regulatory uncertainty in the U.S. and one-off agreements, driven solely by customer demand, has been clunky and slow as compared to the experience that the U.K. and Europe have been able to achieve, because there’s a standard, and there are rules, and whether people like them or not they know how it operates.”
For financial providers and FinTechs alike, all speakers agreed that the time to get involved in the process is now.
“There are a lot of people who will discuss this amongst ourselves and have intellectual debates, but I think there needs to be an effort to put pen to paper and make sure they’re brought front and center to the AMPR,” Tarkowski said. “If they’re not, they won’t be considered the way we want them considered. We need as much information as we can provide to our regulators as they work on this process, to remind them it’s not only about consumer choice but laying a foundation of using these tools to help large swaths of the population who can be directly and indirectly helped by this. We need to submit comments to get the rules we want. They won’t just magically appear.”
– Jess Purdy