U.S. Open Banking | Oct 22, 2024
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CFPB’s New Open Banking Rule Impacts Data Rights, Influencing Competition and Innovation in Both the U.S. and Canada
The Consumer Financial Protection Bureau (CFPB) has introduced a new Open Banking rule that will change how Americans manage their financial data. The Personal Financial Data Rights Rule lets people have greater control over who can access their financial information, making it easier and safer to switch banks or service providers.
See: CFPB’s New Rule Boosts Open Banking Standards
The new rule aims to lower borrowing costs, improve customer service, and give consumers more options when it comes to banking and payment services. Beyond the United States, this change could also influence how Canada develops its own open banking system which would may help reshape the future of financial services in both countries.
What Does the New Rule Do for U.S. Consumers?
The new regulation from the CFPB allows consumers to provide their banks or financial service providers permission (or not) to share their financial data with other parties. Information from credit cards, bank accounts, payment applications, and other sources may be included. The goal of this rule is to make it simpler for customers to get better deals and improved services from banks and fintech companies by removing barriers (switching costs) that prevent them from sharing their data.
See: Competition Act Amendments and What It Means for Fintech
It is anticipated that increasing data portability and openness would boost competition and motivate financial institutions to enhance their products in order to keep their clients happy.
- People can transfer their financial data from one bank or provider to another without paying any fees, making it easier to switch to better options.
- The rule provides stronger privacy controls by ensuring that any data shared with third parties is only used for the specific services the consumer has approved. This prevents the data from being used for other purposes like advertising.
- Ability to remove access swiftly with a simple and easy to understand revocation process. If you take away access to your data, the rule ensures it stops immediately and your data is deleted by default unless you give permission (again) within a year.
- The rule will be phased in with institutions being required to follow the rule by 2026 (smaller institutions have until 2030).
Rohit Chopra, CFPB Director:
“Too many Americans are stuck in financial products with lousy rates and service. Today’s action will give people more power to get better rates and service on bank accounts, credit cards, and more.”
What Does This Mean for Open Banking in Canada?
The U.S. adopting open banking may have implications for Canada who has been working to develop its own ‘consumer-driven’ financial model of open banking for several years now (but has been dragging its feet).
See: Canada’s Open Banking Framework 2024 Preview
1. Canada has taken a step-by-step approach to giving people more control over their financial information. However, with the progress (and productivity) achieved in the United States around Open Banking it may encourage Canadian policymakers to accelerate their efforts to finalize open banking in Canada so Canadian consumers do not fall further behind and miss out on modern banking choices.
2. If both the U.S. and Canada have interoperable data-sharing standards, it will improve cross-broder options for financial services, which would be especially beneficial for Canadian fintechs looking to expand South of the border while providing Canadians with more options and new, creative products that operate in both countries. By aligning standards, it will also make it easier for companies operating in both the U.S. and Canada to comply with regulatory requirements (rather than have duplication of effort, causing productivity gaps).
3. Canadian banks will feel pressure to innovate their products in the face of increased competition from fintechs and U.S. banks. Otherwise, consumers may begin to switch in favour of cheaper, better financial offerings and an overall improved customer experience (more control over their data and privacy).
See: FCAC Embraces New Role in Canadian Consumer Banking
4. By allowing consumers to grant third parties access to approved data, the U.S. is creating stricter privacy regulations than currently in place. As data sharing grows, Canada will want to ensure its consumers are also being protected with comparable strict privacy laws to ensure public confidence.
While CFPBs Open Banking regulation is positive and promotes competition in payments, it draws attention to the challenges that Canada needs to overcome to successfully implement a similar open banking system in Canada that will help both customers and the larger financial ecosystem. While not an exhaustive list, these obstacles may include handling data privacy issues, guaranteeing compliance among smaller organizations (yet providing flexibility on its implementation), and handling the technological difficulties of safe data exchange.
Outlook
As Canada works on its own version of open banking, it can take useful insights from what the U.S. is doing to build a system that encourages competition and innovation while keeping consumers at the center. By emphasizing choice, data protection, and fair practices, Canada can develop a system that benefits its people and helps the digital economy grow. The U.S. approach to making data easier to share could also help smaller companies compete with bigger banks, leading to a more dynamic and healthy market.
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