• Tom Burton, Director of External Affairs & Public Policy at GoCardless


• 20.10.2023 10:15 am
#OpenBanking

The year is 2010. Apple just launched the first iPad, Google has unveiled a driverless car, and PSD3 was just PSD. It was also the year the U.S Congress put open banking on the agenda. 

Congress passed the Dodd-Frank Act which, in Section 1033, tasked the Consumer Financial Protection Bureau (CFPB) with creating regulations that would enable, what is known today as, open banking.

“[A] covered person shall make available to a consumer, upon request, information in the control or possession of the covered person concerning the consumer financial product or service that the consumer obtained from such covered person, including information relating to any transaction, series of transactions, or to the account, including costs, charges, and usage data.”

In simpler terms, find a regulated way to give consumers greater control of their data. Not only would this empower consumers, but it would also help to drive competition in the payment and data space, with third parties able to use the data as the catalyst for newer, better products and services. If you’re based in, or take payments in, the UK then this may sound like the Competition Markets Authority’s pronouncement but in a different accent. And yes, the outcome that the two want is similar. 

However, there are some notable differences in the countries’ approaches. Open banking policy discussions began much earlier in the US, yet the UK was already marking the fifth anniversary of regulated open banking activity the same month as the CFPB’s deadline for responses to their (relatively) newly published proposals. And whilst the UK has had progress driven by regulators and policymakers, stateside the private sector has been solely responsible for open banking innovation to date.

So, why are we talking about this now? Because good things (we believe) come to those who wait. And in this case, the good thing is the CFPB’s Personal Financial Data Rights rule. If finalised, this new rule will oblige certain data providers (mostly banks) to make consumer deposit and payment data available to their customers and to authorised third parties. Crucially, the data will be transferred securely and only with the express permission of the customer. 

Will this fundamentally change the nature of how open banking is advancing in the US today? Maybe not, but putting open banking on a regulated footing is good for consumer trust and, ultimately, consumer demand. This year alone, the UK has experienced a 10% month-on-month growth surge in the number of open banking payments, with consumer demand being credited as a key factor after 10.5 million single domestic payments were recorded in a single month. It’s this demand that has piqued government, regulator and third-party providers’ interests, with them all racing to put in place frameworks that capitalise on the momentum whilst ensuring there are stringent consumer protections. So, if the UK is anything to go by, this is when things get really interesting and the official race between invested parties across the US will step up. 

While the final rule may not come until early 2024, we applaud the CFPB for taking the time to get the process right and for driving forward the momentum for new innovation. We’re already looking forward to what we’ll be seeing in a year’s time.