Dominant payments players and financial services companies will not have leeway to dictate the terms of open banking in the U.S., Consumer Financial Protection Bureau Director Rohit Chopra made clear in a post on the agency’s website Monday.
The CFPB, which polices and regulates the financial services market, is preparing to issue a rule proposal with respect to open banking later this year. The open banking trend, which has gained traction mainly in Europe, gives consumers more control over their financial data so they can share it across financial institutions.
The agency expects to float its open banking rule proposal within months and will ask for public comment on it, but the rule won’t be finalized until next year, Chopra said in the post. In addition to stoking more competition among financial institutions, open banking is aimed at creating more service options for consumers and businesses, he said in describing the benefits.
“In a more competitive market, Americans will be able to earn higher rates on their savings, pay lower rates on their loans, and more efficiently manage their finances,” Chopra said in the post.
The European central bank has led the way in fostering opening banking by adopting a revised payments services directive, nicknamed PSD2, in 2016 and ushering it in gradually in subsequent years. The thinking has been migrating to the U.S. only slowly, with some major players, including card network giant Visa, questioning whether it will ever gain more traction.
In his most recent effort this week to “lay the foundation for open banking in the United States,” Chopra was reiterating his prior proclamations on open banking from last October. At that time, he explained that if a rule was successful it would empower consumers to break up with banks that provide bad service, and reduce the ability of corporate incumbents to block new entrants in the market.
Curbing the power of incumbents
Chopra doubled down on that theme this week, stressing in the blog post that his agency will seek to ensure that incumbents aren’t in control of setting new standards for open banking. Dominant players have attempted to skew parameters to their advantage in the past with respect to new technologies and that shouldn’t be, Chopra said.
“The CFPB expects fair standards to play a critical role in open banking,” he said.
Chopra said he doesn’t want the CFPB to micromanage the industry’s development of open banking, but he does expect it to hover as open banking evolves.
“While the CFPB intends for the market to play a significant role in developing and maintaining open banking standards, it will pay close attention to any attempts to limit consumers’ exercise of their data rights, particularly where such attempts proceed from coordinated efforts by dominant firms,” he said.
Industry support for open banking
The CFPB’s approach to open banking elicited some early support from the corporate world. The Electronic Transactions Association, which includes some 500 company members worldwide, including mega-retailer Amazon, card network behemoth Visa and processor giant Fiserv, had this to say this week:
“We applaud the CFPB’s approach of combining formal regulations with industry-setting bodies,” the ETA said in a statement by email Tuesday. “This dual approach ensures the single best solution for consumers. The complexity and ever-changing nature of open banking demand the CFPB and industry work together to create the most effective policy framework.”
One fintech professional, Link Financial Technologies General Counsel Piret Loone, said in an interview that she was pleased to see Chopra and the CFPB making a move on open banking. “This is ideally empowering the consumer,” and giving banks less leeway to keep consumer data to themselves, she said. Open banking is also aimed at providing consumers with easy-to-use services, while maintaining privacy and security, she added.
Link uses open banking to offer merchants, and potentially their customers, a lower priced means of payment by way of ACH rails that link to the consumer’s bank account via its LinkPay service.
Loone noted that without federal regulation, open banking services are subject to a patchwork of state regulations. She noted that President Joe Biden has encouraged the idea of pursuing open banking in the U.S. He backed the CFPB exploring the idea in 2021.
Open banking is the future, and consumers are going to demand it, Loone predicted.
"Thoughtful regulation and standards will empower consumers, encourage competition, and spur innovation," Loone said in a follow-up email.