Will Open Banking Come to the US?
December 14th, 2016
At the massive Money 20/20 conference a few months ago, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray gave an important talk that has been largely ignored by the mainstream media but which is very much worth noting and understanding. In his comments, he looked to bridge potential points of contention within communications between regulators and fintech companies; for instance, he openly tackled the “several enforcement actions” that his agency had taken against fintech companies, defending those actions as “addressing basic meat-and-potatoes issues such as companies that promise one thing to their customers and then do something quite different” and other deceptive practices his agency observed.
After reading his actual speech text for specifics, a few themes and important next steps come to mind that are notable to remember and which should certainly be addressed:
- A European Comparison: As readers of this piece probably know, the European Banking Authority (EBA) approved PSD2 regulations not long ago, requiring banks to open their doors to third-party payment providers and to enable new real-time cross-border payments. We are currently in the midst of the two-year window of time during which the various European countries will be adopting these rules. It’s not a long shot to assume that the CFPB’s push in this direction was heavily influenced by the PSD2 work taking place on the other side of the Atlantic. In fact, Director Cordray called this out in his speech specifically, saying “Four years ago … this initiative was a novelty for a banking regulator, both here and around the world. We have since had many discussions with our counterparts in Europe and elsewhere, and we share a growing enthusiasm for finding ways to leapfrog forward to products that are more accessible, more affordable, more convenient, and more empowering of consumers.”
- Uber-Goals and Easier Credit: Better financial inclusion, making credit easier to obtain, increasing access to the banking system, and making life easier for families to manage their budgets are some of the “uber-goals” mentioned by Director Cordray and are important to recognize. Rather than emphasizing their own needs as a regulator, Cordray has made an important statement, in fact explicitly pointing out in his remarks “We welcome a dialogue with anyone who is facing this sort of challenge in expanding access to credit.”
- Trump’s Impact: We’re already seeing many stories about whether or not the CFPB will continue to even exist – or if so, in what capacity – under a Trump Administration and a Republican Congress. Keeping this in mind is critical since it is entirely possible that the comments made in late October will never see the light of day or will instead be significantly different than the way that CFPB Director Cordray and his staff currently intend them to be. Beyond that, it’s a matter of a wait-and-see attitude until the new administration comes into power on January 20th.
No matter the form that the CFPB continues to operate in, it appears that the notion of open banking and API access will percolate through the US financial services sector, both in response to what is occurring in Europe and for uniquely American reasons that will continue to be fleshed out. How specifically this takes place and what it looks like over the next few years are entirely unknown. However, even with regulatory support/interference (depending on your politics), fintech companies and traditional financial services organizations themselves are likely to continue this interaction and dialogue so long as it serves their own interests by expanding new products and services to customers and prospects alike.