Big banks are quivering in their boots as a push for more defined rules for Open Banking may enable more competition from innovative financial services firms. Several banks have announced that they will charge fees for data gleaned from their operations and leveraged by many Fintechs to provide better and less expensive services to the massets.
The American Fintech Council (AFC) has corralled dozens of Fintechs and more traditional firms, sending a letter to President Trump warning him about this attempt to undermine free markets.
By creating a cost moat, big banks can slow down or halt entirely firms seeking to offer new and improved services by using data generated by bank customers.
The concept of Open Banking is that consumers or businesses own their own data and not big banks. Of course, banks and other financial services firms do not like this, as they have monetized and benefited from this information for many decades.
The Consumer Financial Protection Bureau (CFPB) proposed new guidelines for Open Banking, but they were never implemented. Under the Trump Administration, the CFPB is expected to provide its own spin on regulating Open Banking, and aspiring bank competitors are concerned that the Trump Administration will side with big banks.
As was previously reported, many Fintechs have signed onto this letter asking the Trump Administration to ensure competition thrives and legacy financial firms do not use control of data to maintain their supremacy, thus harming consumers and smaller firms. The letter states:
“Today, the progress your Administration has made is being actively threatened as some of the nation’s biggest banks find new ways to deny consumers access to basic financial services. Large banks are taking aggressive action to preserve their market position by imposing exorbitant new “account access” fees that would prevent consumers from connecting their accounts to better financial products of their choice. This access is critical to ensuring Americans have control of their own financial lives in a digital economy. More fundamentally, they are advancing a dangerous legal interpretation that a consumer’s right to their account information does not include the freedom to share access to a trusted application acting on their behalf.”
The letter warns that if legacy banks are successful, they will crush access to services for Americans by killing competition and undermining innovation. The letter highlights three areas at risk, including Artificial Intelligence, Crypto, Payments, and digital wallets.
AFC urges the President to halt this attempt to block financial freedom.
In the UK, Open Banking rules are mandated, and all legacy institutions are required to comply. The government has taken a more prescriptive approach to Open Banking. In the US, a more laissez-faire approach to Open Banking has been adopted, but it appears that legacy banks are poised to exploit this dynamic.
Regardless, if old banks win, it will be a rearguard action. Temporary at best. The more prudent move for big banks would be to join the movement and have a seat at the table. Emerging as enablers, not opponents. But this is not how legacy banks think.
The AFC letter is available here.