Open banking has been slow to take off in the U.S., compared to other parts of the world, but now that the Consumer Financial Protection Bureau (CFPB) has announced it will release Advanced Notice of Proposed Rulemaking on this topic by December, that could be set to change.
VentureBeat recently hosted a webinar about open banking in the U.S., featuring our very own Susan French, Head of Product and Client Operations at BBVA Open Platform, David Nohe, the CEO of financial software developer FinGoal, and Brian Costello, Vice President of Data Strategy and Strategic Initiatives at data aggregation and analytics company Envestnet Yodlee, which also sponsored the event.
Panelists discussed how the CFPB’s new proposals will likely provide a secure and compliant way for U.S. financial institutions to share consumers’ financial account information with other fintech companies; the benefits for companies, like those that work with Open Platform, which leverage open banking to create innovative apps and solutions; the communities they serve; and the obstacles that might make some financial institutions reluctant to embrace this initiative.
Here’s a round up of some of the key points discussed:
The CFPB’s new proposals, if implemented, could increase the speed of innovation and reduce the costs of financial services.
Nohe said that new rules facilitating data sharing between financial institutions will normalize how data moves throughout the U.S. financial industry. “That will speed up so much new innovation, and the implementation of new innovation, at different financial institutions,“ he said. “Because all of this is simpler and faster, we’re going to see lower costs, and that’s a really big deal.”
The CFPB’s new framework for open banking will create a foundation for Banking as a Service and a wide range of API-driven financial capabilities.
While she said that data sharing between banks and other fintechs was an important step, French said that the real benefit of banks having open banking platforms is the ability to embed banking, financial services and payments into the platforms of third parties. Those third parties could be new digital banks or financial wellness companies that want to offer banking and payment services to their customers, gig economy businesses who need to embed in their apps the ability to pay people for tasks they perform, or companies disbursing funds to cover insurance payments, expense reimbursements or merchant rewards.
“Being able to use Banking as a Service to do that kind of disbursement in real time, as opposed to having your customer wait three to four business days for a check or even a direct deposit to appear, creates all sorts of interesting value propositions,” said French.
Some banking and payments services enabled by open banking, spurred by the desire for digital and contactless payments during the pandemic, could be transformative in the next few years.
“Real-time payments and the ability to imbed those in all sorts of customer interactions is going to be a game changer for a lot of companies,” said French. “Research that we and others have been doing suggests that consumers really want those capabilities and will change providers to get them.”
Not all U.S. financial institutions support open banking and banks are typically slow to adopt new technology.
French said while many U.S. banks are resistant to change, new regulations will eventually change their mindset, in the same way that new European open banking regulations about data sharing also encouraged European banks to embrace Banking as a Service. “Once they had made the technology investments necessary to enable data sharing, it gets easier to add more technology to enable Banking as a Service.” She said that sweeping change will be slower in the U.S. than in Europe, but enlightened financial institutions would take advantage of the first mover opportunity.
Whatever proposals the CFPB releases, the size of the financial services industry and the fragmented regulatory environment could make new open banking regulations slow to materialize.
All three panelists noted that state regulators and the Fed, as well as the CFPB and the federal government, create financial regulations and it will take time for those different points of view to morph into a coherent regulatory strategy that the banks can react to. “Until we get harmonization in federal regulations and clarity from state regulators about who licenses [the wide range of fintech companies], there are going to be significant headwinds,” said Costello.
“In countries where open banking has been adopted quickly, there’s been a much smaller concentration of institutions that control significant consumers and transactions, whereas in the U.S. there are 6000-plus financial institutions that need to align,” said French.
Despite these headwinds, open banking has the power to eventually change the country.
By giving more consumers and small businesses access to spending, borrowing or financial planning tools that improve their financial wellbeing, the knock on effect will be more financially healthy families and communities, and ultimately, a financially healthy country. “The number one promise of open banking is to be able to build, deploy and manage, customer-centric, personalized solutions to help consumers of all demographics, all states of life, all levels of need,” said Costello.
He said that better lending products would keep people away from predatory lenders and better investment products would help to solve the underfunded retirement crisis. Improved financial wellbeing would eventually reduce the number of people that need federal assistance and improve access to housing and education. “Open banking has the potential, if done right, to have some very important positive effects for our people and our nation,” he said.
If you’d like to find out more about how Open Platform provides embedded banking and payment services to our clients, contact us.
The Open Platform team