Don Cardinal, Managing Director at FDX, shares his overview of Open Banking and Open Finance in the United States, diving deep into participants, standards, regulation, and timelines.
Open Finance is alive and well in North America!
Let’s talk about what that means.
Open Banking refers to an end user’s ability to securely access and share their own financial data from payment accounts.
Different terms are often linked to the presence, or lack of, regulation, whether they be government-regulated financial data-sharing regimes, market-driven systems of end-user permissioned data sharing, or some hybrid of the two. In many jurisdictions, it is limited to bank data sources or even within banks to ‘current accounts’ – checking, savings, and credit cards – and is a subset of Open Finance, which is itself a subset of Open Data.
Open Finance refers to an end user’s ability to securely access and share the totality of their own financial data.
The CFPB estimates that at least 100 million consumers share their banking data with third parties. The good news is that at least 65 million of them are using a standard industry format for secure, user-permissioned financial data sharing – the FDX API with over 5 billion API calls per month.
First and foremost is the consumer (or end-user). The process starts and ends with them. They permit what types of data, for what purpose and for how long, and can terminate access at any time.
Indeed, the FDX data sharing principles are Control, Access, Transparency, Traceability, and Security (CATTS) and all describe aspects of how consumers interact, permit, and direct their data from and to third parties.
Data Providers are organisations that leverage the FDX API to safely and securely provide user’s data with their explicit consent (e.g.: banks, credit unions, brokerage firms).
Data Access Platforms are companies that retrieve user’s financial data from Data Providers through FDX APIs and makes it available to their clients (e.g.: data aggregator, data service providers).
Data Recipients are companies that retrieve user’s financial data directly from a Data Provider or through a Data Access Platform by leveraging the FDX API to empower and enable business use cases to satisfy the customers financial needs (e.g.: fintech apps, products, and services).
It is possible for a party to have multiple roles depending on the direction of the data flow.
The industry is itself addressing market needs, satisfying customer demands, and setting technical standards (data formats, security, and user experience guidelines). The industry established a nonprofit, voluntary standards setting organisation, the Financial Data Exchange, in 2018 to develop a common, interoperable, royalty-free standard that is fair, open, and inclusive. The FDX membership of over 220 organisations reflects a ‘full range of relevant interests – consumers and firms, incumbents and challengers, and large and small actors’ as referenced in the NPRM. Membership is open to financial institutions, fintech companies, financial data aggregators, consumer advocacy groups, payment networks, and other industry stakeholders. FDX is entirely market-funded, with no direct or indirect taxpayer funding.
The market in the US is lightly regulated, allowing for innovation and for the market to set technical standards and introduce capabilities as fast as consumer demand dictates. Indeed, the US (via the FDX API) supports more account types and use cases than any other jurisdiction as a result of market-led technical standards. The infographic below helps illustrate both the difference between Open Banking and Open Finance as well as the breadth and innovation occurring in the US via a voluntary standards setting organisation.
The Consumer Financial Protection Bureau (CFPB) indicated in June of 2023 that ‘(the) CFPB intends for the market to play a significant role in developing and maintaining Open Banking standards’.
The CFPB released a long-awaited Notice of Proposed Rule Making (NPRM) in October 2023 that is still being reviewed by participants in the ecosystem. It did echo its June statement: ‘industry standard-setting bodies that operate in a fair, open, and inclusive manner have a critical role to play in ensuring a safe, secure, reliable, and competitive data access framework.’ In addition, it proposed implementation dates for the industry for developer interfaces (APIs) from the date of final rule publication (which some believe could be as soon as October 2024):
Publish date;
+06 months: FI > USD 500 billion in assets and non-depository institutions (NDI) > USD 10 billion in revenue;
+12 months: FI USD 50 billion to USD 499 billion in assets and NDI < USD 10 billion in revenue;
+30 months: FI USD 850 million to $50 billion in assets;
+48 months: FI < USD 850 million in assets.
There are nearly 300 pages in the NPRM addressing a wide range of topics and readers are encouraged to review it in depth for themselves.
Conclusion
The American Open Finance ecosystem is arguably the most innovative and the largest in the world due to the active participation of market participants large and small to create common, open, interoperable, and royalty-free technical standards that increased efficiency, lowered barriers to entry, and fostered innovation. 220+ organisations, 65 million consumers, and 5 billion monthly API calls are strong data points in that argument.
This editorial piece was first published in the Open Finance Report 2023. We encourage you to download the report and find out the latest trends and developments in the world of Open Banking and Open Finance, as the road to Open Data continues.
Don Cardinal is Managing Director of Financial Data Exchange (FDX) and spent over 20 years with Bank of America, serving in the Military Bank, Digital Banking & SVP of Information Security. Don holds 18 patents and CPA, CISA, CISM certificates.
FDX is a nonprofit standards setting organisation dedicated to unifying the financial industry around a common, interoperable, royalty-free standard for secure, permissioned access to consumer and business financial data. Membership is open to financial institutions, fintechs, financial aggregators, consumer groups and other industry stakeholders of all sizes – visit www.financialdataexchange.org.
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