The director of the Consumer Financial Protection Bureau (CFPB) announced the coming of a new U.S. open banking rule in late 2022, accelerating the move toward open banking. The aim is to solidify personal financial data rights, with the practical goal of allowing consumers who wish to switch card carriers or banks to transfer their account histories to new companies.
In Canada, there is additional movement towards open banking regulation. Also in 2022, Abraham Tachjian was named open banking lead and tasked with developing an open banking framework. The announcement of that framework is expected in 2023.
“At Axway, we’ve been championing open banking for years, and the latest U.S. announcement represents an exciting shift in the North American financial services landscape,” says Laurent Van Huffel, Senior VP of Financial Services & Open Banking for North America at Axway. “A true common standard is the way forward to open the playing field and support a dynamic, competitive financial services market that puts the consumer at its center.”
A recent Mastercard survey found that 70% of Canadian small business owners say they are more inclined to use government tools/technologies in a hybrid open banking system, as opposed to unregulated platforms. This suggests that regulated standards will be key to building trust in open banking technologies.
U.S. and Canadian open banking regulation would unleash market competition
“While not explicitly an open banking or open finance rule, the rule will move us closer to it, by obligating financial institutions to share consumer data upon consumer request, empowering people to break up with banks that provide bad service, and unleashing more market competition,” said CFPB Director Rohit Chopra in his prepared remarks at the Money 20/20 conference in Las Vegas.
“If successful, it will also reduce the ability for incumbents to build moats and for middlemen to serve as gatekeepers,” he added. “It will provide big advantages to those who provide the best products, service quality, and rates.”
Similarly to U.S. phone number portability regulations that helped open the market for telecommunications services, the new rule promises to create opportunities for firms to move forward with open banking.
For example, the suggested U.S. open banking rule could help open the playing field for smaller, more nimble organizations and help them offer their services as part of open banking ecosystems connecting multiple companies.
Keeping data timely and secure
North American moves to create open banking rules also underscore the importance within financial institutions of fast, secure access to quality data, with APIs as the enabling technology
If customers request it, data holding companies will have to share customer data with authorized third parties securely. This is expected to reduce screen scraping and misuse of financial data. In addition, the rule could help firms underwrite and score with less bias and reliance on credit scores.
For consumers, the new rules represent a meaningful way to control how their data is used, beyond opt-out data privacy rules. Financial services firms will face more pressure to maintain or win customer loyalty, compete on individual products, and integrate third-party services into their own offerings.
And while open banking does require banks to securely expose data for greater interoperability and competition, essentially becoming an API provider, it’s important to note that it also offers up a goldmine of actionable intelligence that can yield rich cross-selling opportunities and more.
Understanding the CFPB rulemaking process
Before issuing a proposed rule, the CFPB must convene a panel of small businesses that represent their markets to provide input on our proposals. Toward that goal, the bureau publicly released a discussion guide in the fall of 2022 that small firms can weigh in on.
Through that process, the CFPB will hear from small banks and financial companies who will be providers of data, as well as the small banks and financial companies who will ingest the data. They will also gather input from the “fourth parties,” the intermediary data brokers that facilitate data transfers.
The CFPB is working on a report about the input received through that process, which will inform a formal proposal later in 2023. The CFPB’s director says he hopes to finalize the rule and move to implementation in 2024.
There will be many opportunities to provide input to inform the public record throughout the process. When the United Kingdom first started on this path, an Open Banking Implementation Entity was established to provide critical services and infrastructure, among other duties.
In the U.S. and Canada, there are already efforts underway to implement open banking and also ensure a common set of standards to exchange data, not least of which is the Financial Data Exchange. This consortium of key stakeholders maintains a common API standard that provides interoperability around financial data sharing. It has quickly established itself as the de facto North American open banking standard, with 53 million consumer accounts using the FDX API at last count.
The CFPB is gleaning insights on the experience abroad, as well as domestic developments, to determine which standard to use.
Most recently, Director Chopra wrote in June that the CFPB is actively working on its proposal to help give consumers the right to control their personal financial data, but that “the agency must not micromanage open banking.” Rather, he notes, many of the open banking details will be handled through standard-setting bodies already operating in the market.
“Fair standards developed by the market to leverage our rule will be critical to the creation and maintenance of an open banking system in which consumers can vote with their feet — and exercise their data rights without being trapped by powerful incumbents and without losing control of their data,” says Chopra.
Canada’s next steps on open banking
Leading Canada’s open banking efforts, Abraham Tachjian is tasked with developing a “made-in-Canada” approach, based on recommendations from expert committees. To do so, he is engaging with industry, regulators, and consumer representatives to design and implement key pillars of the open banking system.
Working groups have been meeting to focus on accreditation, liability, privacy, and security. So far, they have made good progress, with clear consensus on some core elements of accreditation and common rules.
It is expected that an open banking framework announcement will be made in September 2023.
Turning open banking regulation into opportunity
Axway’s Amplify Open Banking solution gives financial services firms the tools, flexibility, and scalability they need to unlock their customer data securely and comply with new CFPB rules as they come into force.
“Amplify Open Banking is built with our ‘Open Everything‘ philosophy at its heart: that a financial ecosystem connected via APIs needs to be open to every player in the value chain,” concludes Van Huffel. “It’s why our solution is agnostic from the API infrastructure of the customer in order to bring together APIs from any platform, whether based on an open banking standard like FDX or OBIE, or proprietary, regardless of vendor or cloud deployment model.
“An open ecosystem can only benefit the API provider and the consumer as it drives greater innovation.”
The Axway solution makes APIs built to common open banking standards easily discoverable and consumable to accelerate new services. Integrated identity and consent management keep your customers’ data secure. Coupled with Amplify Enterprise Marketplace, the solution lets you govern and control the APIs you need to stay securely connected to customers and partners.
Beyond the technology, Axway is ready to help you take open banking from compliance to business acceleration.
Watch our webinar on demand for strategies to eliminate screen scraping ahead of upcoming CFPB regulation.