Open banking: Consumers first, advancing the fintech revolution

Plaid’s policy director breaks down the state of consumer banking, fintech and regulation following a new CFPB proposal.

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The move to digital financing hinges on products and services that are well-regulated, fair, and governed by a standardized set of rules. That’s why a shift to open banking — a system where financial data is shared between banks and third-party service providers — could bolster competition and give consumers the transparency they need to make informed decisions.

October’s proposal from the Consumer Financial Protection Bureau (CFPB) stands to level the playing field for innovators, institutional lenders and cross-border partnerships — putting consumers in deeper control of their data with more choices than ever for a seamless experience.

John Pitts, head of policy at Plaid, the open banking pioneer that safely connects fintechs and services with banks, joins Converge to discuss the stakes and status of open banking.

“The consumer is at the center of financial services”  

The CFPB’s measure — dubbed the Personal Financial Data Rights rule — aims to create consistent data practices between financial institutions. This would give people the power to compare various companies’ products “without worrying that their data might be collected, used or retained to serve commercial interests.”

The rule also seeks to standardize how pricing and other key product information is shared, which could make it easier for upstarts to compete with incumbents who at times obscure such data.

Many in the industry are championing it as a positive step toward fairness and open banking.

“It is incredibly exciting to see how fast the industry has advanced and how much the regulators have supported this move toward consumer-controlled financial services,” Pitts says.

Now that consumers can access and assess their entire net worth through seamlessly integrated and protected platforms entering the world stage, Pitts says the paradigm has shifted. Instead of a top-down structure, a more innovative and competitive system can put individuals and businesses in control of their money.

“The consumer is at the center of financial services, rather than being an end user of financial services,” Pitts says. “They’ve got everything built around them. They have a full 360-degree view of their money. They [have] a full 360-degree view of their financial life and their financial data. And they can navigate through a number of choices to get what’s best for them.”

If the new laws are implemented properly, Pitts says they will accelerate competition and offer more choices for fintech consumers. Open banking doesn’t just move the data; it creates a whole new service, allowing developers to create new products and get consumers excited to use them.  

Open banking lifts trust with uniformity

Today, individuals’ revenue streams are more diversified than ever before and feature multiple accounts, making money management increasingly complex.

Standardizing the processes simplifies and enhances the customer experience. The interconnectivity and speed to be gained by uniformity could be transformational if consumers turst the services.

“You can engage with your finances in a way that you never have before,” Pitts says. “It also gives you more choices that you’ve never had in how you manage your money and how you make your money work for you.”

To protect consumer data, Pitts says the industry is shifting to APIs to manage access and ensure privacy.

“Government regulation is coming, and a uniformity of protection would come with it,” Pitts says. “From a consumer perspective, having the confidence that the government is there making sure your data is handled properly is a real boost to trust in the ecosystem.”

At the end of the day, Pitts says it’s best to have a “healthy tension” between innovators and regulators.

“Fintech’s job is to give people what they love, and government’s job is to keep it safe,” Pitts says.

Want more insights on the topics shaping the future of cross-border payments? Tune in to Converge, with new episodes every Wednesday.

*The information shared on this blog is for informational purposes only and should not be considered financial advice. Please note that the opinions expressed on Converge are solely the opinions of the host and the guests, not Convera’s.

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