How to Think About Last Week’s Open Banking News

CCG Catalyst Commentary

How to Think About Last Week’s Open Banking News

By: Tyler Brown

June 11, 2024

Open banking is inevitable, as we wrote this spring, and the Consumer Financial Protection Bureau’s (CFPB’s) rulemaking process just took another step forward. A rule released last week clarifies the qualifications to become a “recognized industry standard-setting body” in compliance with the CFPB’s proposed rule on open banking. The CFPB will approve standard-setting bodies, giving it high-level oversight over how fintechs and other third parties access banking data, without setting technical requirements.

The recently released rule says that to be certified by the CFPB, standard-setters must have certain policies and procedures in place — it had expressed concern that standards could unfairly favor certain firms and the CFPB aims to prevent that from happening.

Key tenets of the standards-setter rule are:

  • A standards-setting process open to all interested parties
  • Transparent and publicly available procedures
  • Balanced decision-making powers
  • Standards approved by consensus

The Financial Data Exchange (FDX), the preeminent nonprofit standard-setting body for open banking APIs, responded ahead of the rule’s release with changes to its governance. FDX said that it’s reorganizing its board to have a “balanced representation” from a) banks and vendors and b) fintechs or other third parties. It also said it would encourage the participation of smaller financial institutions and third parties — when FDX started out, it was mostly made up of large banks.

“The new governance structure will be directly linked to the scope FDX believes it is suited for under a final 1033 [open banking] rule…” — The Financial Data Exchange

Today’s FDX membership is more diverse. Members include financial institutions (FIs), aggregators, payment networks, credit scoring agencies, public interest groups, various fintechs, and consulting firms. Representative members are Bank of America, Plaid, Mastercard, Experian, The Clearing House, the American Bankers Assocation, Fiserv, and PWC. However, FDX appears short on representative samples of small FIs and fintechs or other third parties.

The CFPB’s standard-setting rule should most interest FIs for two reasons:

  • It sets no requirements for FIs overall except to the extent that they exercise influence over FDX decision-making. FDX standards apply to technical implementation, which few institutions will likely do themselves.
  • By prompting FDX to change its governance, it could give smaller institutions a greater voice in the development of technical standards and the direction of open banking — if they seize the opportunity.

Community and regional FIs should see the CFPB’s standard-setting rule as another invitation to engage with the growth and development of open banking. As a small player, it’s easy to let open banking just happen and hope that vendors will step in with strategic help and compliant technology. But this head-in-the sand approach pretends that nothing is changing. The fintech revolution of the past decade suggests how crucial open banking can be to consumers’ engagement with their financial institution, and it needs to be a part of long-term discussions and planning.

Our report “US Open Banking 2024” covers the history of consumer financial data-sharing in the US, the CFPB open banking rule’s implications for how consumers access their financial data, compliance challenges for FIs, and the industry’s way forward.

Click here to read the key findings and download a free copy.