Amid Rule 1033 Uncertainty, Banks Urged Not to Retreat on APIs

No matter what ultimately happens with the Consumer Financial Protection Bureau’s Rule 1033 (also known as the open banking rule), pay by bank is here to stay.

Matt Janiga, director of regulatory affairs at Trustly, has had a front-row seat to the evolution of open banking, data sharing, and the legislation and lawmaking that has been in flux over the past few years.

The bureau’s general counsel indicated May 23 that it will petition a U.S. District Court in Kentucky May 30 to have the rule rescinded.

However, in a world where we’re all used to things being instant — instant payments, instant information flows — Janiga cautioned that the gears of the legal machine grind slowly. What unfolds may unfold over a period of months.

Against a backdrop where there’s been “procedural shuffling” and lawsuits levied against the bureau since the rule debuted late last year, many outcomes may develop as the Bank Policy Institute and a few banks sought to have the rule struck down, he said.

CFPB’s Strategy

“The CFPB is trying to use a litigation procedure to end the litigation so they can move on to other jobs,” Janiga said.

In the case of credit card late fees, the parties agreed to drop the rule. And that may indeed happen in this instance, but it’s not a foregone conclusion.

There are few wrinkles here, so things may not be wrapped up so neatly. The Financial Technology Association has asked to intervene in court if the bureau does not defend Rule 1033. So, the CFPB may move to vacate; the BPI may move to vacate, and the FTA may object and seek to keep the rule in place.

Asked by PYMNTS what he thinks will happen, Janiga said that “based on some of the decisions that the judge has made to date, my assumption is that the CFPB won’t be getting the summary judgment that it’s seeking … at the end of the day, the judge may send this to some other type of proceeding, most likely a trial.”

Trustly worked hard to provide input into the crafting of Rule 1033, and Janiga told PYMNTS that there are parts that could stand some revamping — most notably that due to the top-down push to harness 1033, “the fact that there was such a heavy weight on the privacy scale leads to some contorted outcomes.”

Consumers are forced to reauthorize their data sharing every 12 months whether they want to or not, which can be a pain point when using TurboTax each year or going back through all the connections, bank by bank, that a consumer has with a financial institution or provider and navigating through dozens of screens.

“It eats up a lot of time,” he said.

There’s still some question as to whether banks will allow tokenized account numbers to continue to govern active data sharing. Missing out on the annual reauthorization can cause recurring payments to be missed and credit scores to see a hefty ding.

“There are the pain points that the government could address for consumers, merchants and users if they were going to reopen the rule,” Janiga said.

However, banks would be remiss in seeking to scrap the rule entirely, as APIs (and the blocking of non-API traffic) are among the best avenues to protect consumers’ data, he said.

No Stopping Pay by Bank

Since the rule came out last year, Trustly, the largest pay-by-bank FinTech, has been seeing a strong wave of activity that is unlikely to abate. In the beginning, the data sharing mandated by Rule 1033 led many retailers to embrace pay by bank to lower their acceptance costs.

“We’re getting market pull from pretty much every large company you can think of, and if they are not opening RFPs, they are talking to us directly,” Janiga said, adding, “We’re going to see a lot of different merchants and eCommerce platforms bring pay by bank to consumers, starting as soon as Q4 this year for the holiday season, and then really ramping during 2026.”

Over the long term, banks are going to build open banking APIs that can be used to provide new services with customers shared with third-party providers and retailers, he said.

“You want something that meets consumers where they are and the preferences that they have, which is mobile and fast,” Janiga said. “You have to think about how you share consumers today. You likely share them with Venmo and Cash App. You likely share them with personal financial management apps, like Credit Karma.”

In other cases, Trustly processes payments for all three of the major telecoms that then offer end users discounts. For retailers, payments information and shared data can help fine-tune underwriting and promotional activity, increasing customer retention and loyalty.

“This is an exciting time to be around the pay-by-bank space in the U.S. because it’s overdue, and it’s time for more adoption,” Janiga said.