Open banking (or Open Finance) is a global concept that states financial data generated by users should be transferable if the customer or business approves. In other words, the user owns the data and not the bank. In the UK, this is mandated, making it easier for users to switch accounts when a better option becomes available, thereby enhancing competition.
In the US, the Consumer Financial Protection Bureau (CFPB) proposed Open Banking rules during the last administration, but the Trump administration has put them on hold.
Meanwhile, some established financial services have declared their intention to charge for access to this data, effectively cutting consumers out while blocking competition from innovative financial services.
According to Bloomberg, a group of Fintechs and crypto firms has sent a letter to President Donald Trump to block established financial service firms from charging fees for data. Of course, any fees will fall upon Fintech firms, which will inevitably be passed onto the consumer as legacy operations struggle to maintain supremacy.
The letter states:
“We urge you to use the full power of your office and the broader administration to prevent the largest institutions from raising new barriers to financial freedom. We cannot allow the most powerful, entrenched banks to close the door on a more open and modern financial system.”
The letter is signed by firms like Robinhood, Gemini, Kraken, PayPal, Stripe, and others.
While putting up roadblocks to data will protect legacy operations, these impediments will, of course, undermine competition that may provide superior services to customers at a lower cost. Better for less.
The battle is interesting as it pits Fintechs against old finance, with consumers and businesses in the mix. If consumers and companies own their own data, it will impact legacy finance’s ability to generate revenue from this data, which in turn will affect their income statements.
Reportedly, the CFPB, in its diminished status, is developing new rules to replace those proposed during the Biden Administration. While it may be evident to most that users should own their own data, the concept is arcane, with few paying attention. And the lobbying power of big banks is robust. At the same time, innovative finance is catching up. For old banks, this is a rearguard action they will inevitably lose.