The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. FTA champions the power of technology-centered financial services and advocates for the modernization of financial regulation to support inclusion and responsible innovation.
Open banking empowers consumers to safely and securely access and share their financial data across financial services providers to obtain greater financial choice, personalization, and outcomes.
- “Open banking” is rooted in the acknowledgment of consumer financial data rights – that consumers own their financial data and can share it with another financial service provider to access various financial benefits. Once a consumer selects a financial application or provider, they can choose to share their data by authorizing a trusted third-party to access the necessary data on their behalf.
- Because financial services is a complex system with lots of participants, open banking typically involves four parties: a consumer, financial institution, financial application, and data platform that moves the necessary data on a consumer’s behalf.
- Many financial institutions enable consumers to share their information through secure application programming interfaces (APIs). Over the last few years, data platforms have worked in coordination with many of the largest financial institutions to move away from a process known as ‘screen scraping’ to instead sharing consumer-permissioned data over APIs. Screen scraping generally serves as a fall back option when a financial institution does not have an API, which is most common for smaller institutions.
- Open banking allows consumers more convenient and efficient ways to view and manage their money and shop for new, more tailored, and lower-cost financial services products and providers.
- Open banking facilitates competition by allowing new entrants in the marketplace and ensuring information is no longer trapped with incumbent providers; consumers are empowered to use their data for their own benefit.
- Open banking technology allows access to important tools for unbanked and underbanked consumers, including increased access to credit through identity verification, increased data sources, such as rental, utility, or tax payment history, and no-fee salary advances.
Open banking solutions empower consumers across the globe with a comprehensive and holistic understanding of their financial health and access to financial products that improve their financial outcomes.
- Research highlights the rapid growth of open banking in Europe, where consumers use APIs to share their payment data, which has resulted in increased access to new services, with 2020 estimates predicting it would double from 2018 to 2021.
- Early data out of the UK demonstrates that open banking is driving growth in the number of regulated third-party providers.
- Open banking and the seamless and secure flow of permissioned data allows fintech companies to offer consumers tailored and improved services; a recent survey found that 73% of Americans say fintech gives them more control over their finances and 68% say it helps them reduce financial anxiety.
- Examples of open banking include when consumers seamlessly connect their bank account to a payment app, use personalized financial dashboards to better understand their financial health, provide access to non-traditional financial data in order to receive credit, and/or aggregate investments with a digital investment advisor.
- Open banking further provides opportunities to stimulate payments innovation by permitting direct integrations with banks and offering consumers faster and lower-cost payments services.
- Another recent survey of consumers found that 77% would value having their financial institution offer them personalized financial advice based on open banking data; 94% would want their financial institution to use financial data to advise them about a better deal on a product.
In October 2022, the Consumer Financial Protection Bureau continued its rulemaking activities by releasing an outline of options the CFPB is considering in relation to establishing financial data sharing standards under Section 1033 of the Dodd Frank Act.
- Section 1033 states that consumers own their data, allowing them to share their data when and where they like to power personalized financial services.
- Proper implementation of Section 1033 will enhance these dynamics to the benefit of consumers and small businesses.
FTA supports consumer-centric implementation of open banking regulation in the United States to empower consumer choice, data security and privacy.
- By enabling data portability, subject to privacy and security guardrails, open banking gives consumers complete ownership of their financial data, including transaction history, real-time account balances and loan payment history.
- To support consumers’ ability to benefit from innovation and competition in financial services, FTA encourages regulators and policymakers to:
- Establish a broad data right that is consistent across direct and authorized access;
- Create a level playing field for all Americans and ensure that Section 1033 rulemaking does not generate inequity for consumers, where consumers’ access differs depending on where they bank;
- Allow for the free flow of data from other institutions that touch a consumer’s financial life, including payroll companies, telecom, and utility providers, and the government, which can provide, for example, Social Security data;
- Establish strong guidelines for consumer transparency and control, including that consumers be aware of all parties involved in data sharing and have ownership over which data they are sharing, with whom, and for what duration; and
- Support standards-development in service of consumer rights by establishing baseline principles and expectations that those standards must meet.