U.S. companies may have made significant progress in bringing innovation to the payment systems that undergird the digital economy, but regulation hasn’t necessarily kept apace.
That’s the message Finicity CEO and Co-Founder Steve Smith drove home in a discussion with PYMNTS’ Karen Webster. And nowhere is this perhaps truer than in open banking, where a lack of a preexisting regulatory framework for data portability is holding back innovations that other markets may soon come to take for granted.
To be sure, the U.S. financial industry has been making strides in the space for a couple of decades, and a robust FinTech sector that’s driving constant innovation that benefits consumers and businesses alike has grown up as a result. But unlike in the European Union and United Kingdom, where rules like the General Data Protection Regulation (GDPR) make it easier for customers “to move more freely among players within the financial services industry,” the U.S. market has developed a series of piecemeal solutions.
“What’s happening with technology and cloud-based microservices solutions [in the U.S.], it’s almost like this layer is getting built out on top of the accounts themselves,” Smith said. “The industry found a solution to access the necessary data without a specific regulation.”
Portability Isn’t a Given
The issues surrounding data portability are complicated to begin with, Smith said. And in the U.S., they’ve been made more problematic because they’re governed by a myriad of bilateral agreements between private entities that make it difficult for the left hand to tell what the right one is doing.
To illustrate the challenges, he used his own company’s work as an example.
As there isn’t a general legal framework for accessing data from every financial institution (FI) it works with, Finicity must negotiate agreements with every customer that uses its application programming interfaces (APIs). The technology for accessing the data is the same, but the rules shift subtly from client to client.
To achieve greater progress, he said, “what we really have to do is double down on data access and ensure that we’ve built that ecosystem out well, and then see what advancements and where the ecosystem is headed.”
But making headway requires buy-in from policymakers, he said. And secure data access and authentication are a big part of the conversation in Washington right now. In particular, definitions around data and data access need more clarity.
But we have the technology, he said. And it’s up to the industry to do the convincing.
Thought leaders, he said, “are deeply steeped in in the process,” but the sheer size of the U.S. financial industry creates a need for greater evangelization to bring small and medium banks, not just big players and tech companies, onboard.
In the end, he said, the aim is to create a more streamlined financial system that promotes competition and gives consumers more choice. Smith said it should be up to the consumer to decide what financial services they use; it shouldn’t be dictated by an inflexible financial system where cobbled-together legacy systems make the rule.