CFPB Open Banking Review Could Place Banks and FinTechs at Odds

The Consumer Financial Protection Bureau (CFPB) is preparing to review its open banking rule.

That rule was issued by the CFPB last fall, covering consumer-permissioned data that touches banks, FinTechs, apps and digital wallets, governing data security, liabilities and fee structures as financial institutions share account-level data with FinTechs.

And as Bloomberg News reported Tuesday (May 13), the review could reopen a data-sharing fight between banks and FinTechs.

“Open banking pits two sides of industry against each other, with consumers somewhere in the middle,” Dan Murphy, a consultant who oversaw the CFPB’s open-banking program during the Biden administration, wrote in a post last week, per Bloomberg.

“Want to give the banks the ability to charge fees for consumer-permissioned data access? Good luck explaining that to FinTechs,” Murphy said. “Want to let FinTechs do whatever they want with consumer-permissioned data? Good luck explaining that to banks.”

As Bloomberg noted, revisiting the rule runs the risk of reopening several issues. While banks chafed at open banking, contending that data-sharing arrangements would increase fraud and expose them to more liability, some said they appreciated the new clarity.

The Financial Data Exchange said in April that 114 million secure customer connections have now been made between FinTechs, banks and other financial firms, up from 76 million a year ago, the report said.

“Millions and millions of dollars have been spent on this,” Cathy Brennan, a partner with the law firm Hudson Cook who counsels the financial sector, told Bloomberg.

Meanwhile, strides are being made in open banking despite a lack of clarity on regulatory changes, PYMNTS wrote earlier this week.

For example, One Inc Chief Product Officer Sarah Owen told PYMNTS in April that banks are modernizing their legacy and back-office systems, particularly as insurers have gone through “a massive transformation. It started with moving from old mainframes to … modernized core system providers” to link to the One Inc platform.

“Open banking enables real-time data-sharing through APIs, and what businesses are looking for in consumers is a level of security that they have not been able to have before,” Scott Brackin, executive vice president of bank account and payment intelligence at ValidiFi, told PYMNTS in March.

Consumers want to share that information securely, Brackin added. Ultimately, it makes their purchase and decision ecosystem much cleaner for both parties in the transaction.

“For now, as the financial services industry awaits clarity, open banking’s evolution will be market-driven, but details on liabilities and the financial/fee structures that might incentivize all providers may do much to turbocharge that evolution,” PYMNTS wrote.