The FinTechs that have filled in gaps for both consumer and corporate financial services are often positioned in competition with traditional FIs. But in order for these FinTechs to operate properly, they often need the financial data housed by those banks.
As more FinTechs and banks forge data sharing agreements, it's called into question the relationship between FinTech and bank and heightened demand for consumer data protection laws and practices that ensure the customer ultimately owns and controls their financial data.
SME cloud accounting firm Xero has had to navigate this data sharing climate and seems to be succeeding. Earlier this month, the firm announced its latest bank partnership, this time with Silicon Valley Bank, which facilitates the flow of data of joint customers between the bank and Xero (the company inked a similar deal with Wells Fargo last year, reports noted).
Ryan Himmel, Xero's CPA, Financial Partnerships for the Americas, told PYMNTS that striking a deal with a bank involved a change in conversation.
"When it comes to financial institutions and the different dialogues we've had, there have been concerns over the bank sharing data with a third party like Xero, and as a result of doing so, any sort of breach or mishap would then come back to the bank," he explained. "But the way we position the conversation — and other financial institutions are really starting to take note of this — is that, whether the data sits within a financial institution or sits within Xero, at the end of the day, it's the customer's data, and they should be the ones to have the authority to share that data."
Customer ownership of his or her — or, in this case, a small business' — financial data is a controversial topic. The Consumer Financial Protection Bureau began taking a closer look at the issue last year, announcing an inquiry in November to assess whether there are any issues, in terms of security or otherwise, when customers allow the sharing of that information.
“Consumers should be able to use their financial records and account information and securely share access in an electronic format,” said CFPB Director Richard Cordray at the time. “Technology provides opportunities to use these records to create new consumer tools that help improve financial lives.”
And just this January, several FinTech startups in the U.S. joined together to create the Consumer Financial Data Rights coalition, a group that argues, under Dodd-Frank legislation, consumers have the right to access their financial data through a third-party platform, like Xero's.
"[Customers] should have the ability to control that data," Himmel stated. "It's their data. So, after having several different conversations with different financial institutions, the banks have gradually shifted towards, 'How do we work better with third parties?'"
In Xero's case, the way to approach this is to enable data sharing via API. This, explained Himmel, ensures the protection of a customer's data and negates the need for that customer to share bank credentials with the third-party app, an issue he noted that has been a major concern and topic of debate in this realm.
"That's shifting the conversation less from, 'Is this our data? Is it your data?'" he continued. "It's more about, 'How do we create a framework that's really secure and protects the customer's rights?'"
Corporate clients of Xero's, Himmel said, tend to be "extremely comfortable" with the pursuit of these data sharing agreements.
"They love the fact that we're being innovative and working with the banks — we haven't had any real pushback," he said. Data sharing means faster, deeper integrations so small business accountants and their clients can make more agile decisions about their cash positions and forecasting, and business clients of Xero, he noted, acknowledge those benefits.
"You think about being comfortable to make payments to a supplier or to an employee, or if they know they're going to be hot on cash, they have this real-time data feed," Himmel said of the positive effects of theses data sharing deals. "They're going to reach out and be more proactive with their customer base."
These deals also enable a small business to have a secure way to access their financial data for the purpose of mapping out growth plans or pursuing financing, he added. That last case is equally as beneficial to a bank, which may actually be doing the small business lending.
The executive said that Xero's corporate and accountant customers are "extremely" knowledgeable about data security issues and have taken it on themselves to be proactive with their own corporate data security. As more advocates emerge for the protection of financial data, data sharing agreements between banks and FinTechs are likely to be more commonplace. It's unclear how the CFPB may eventually act on the issue, but for now, it's up to FinTechs like Xero to lead the conversation with FIs in order to secure the financial data needed for their solutions.