Vlad Macovei, Senior Editor at The Paypers, shares insights about the recent regulatory updates for Open Banking in the US and the main fintechs active in the region.
I’m positive that anyone who reads this has had their LinkedIn wall bombarded with posts regarding CFPB (finally) finalising the rule for personal financial data rights. Steve Boms was recently kind enough to explain the effects of this rule for the US market. Let’s dive deeper into this geography to understand exactly who are the main players that stand to benefit from this rule, outside of the end consumer.
Back in 2010, as a response to irresponsible behaviour from the financial industry that led to the 2008 financial crisis, the US Government passed the Dodd-Frank Act to improve consumers’ financial safety.
In the context of Open Banking, two things stood out. First, the creation of the Consumer Financial Protection Bureau, and second, section 1033 of the act. The latter specified that a consumer financial services provider must make available to a consumer information in the control or possession of the provider concerning the consumer financial product or service that the consumer obtained from the provider.’
In October 2020, the Consumer Financial Protection Bureau submitted a proposal for a rule-making effort related to section 1033 of the Dodd-Frank Act, the first sign of support for the notion of Open Banking. In July 2021, as part of the White House’s executive order regarding competitiveness and anti-monopoly behaviour, there was a firm statement that people should have a right to move their financial data from one organisation to another, a right to their transactions and that enabling those rights should not be a complicated process.
In October 2023, the CFPB officially released a proposed Personal Financial Data Rights rule, explicitly aimed at accelerating the shift to Open Banking. One year later, the rule is finalised, and the general thought is that it will give US consumers optimised rights, privacy, and security over their personal financial data.
The final rule is considered a game-changer. Up until this point, the US has already seen market-driven Open Banking, meaning that fintechs could provide Open Banking-powered solutions to US customers via the aforementioned section 1033 of the Dodd-Frank Act. However, the new regulation seeks to level the playing field for all consumers, regardless of which bank they use.
According to Steve Boms, in payments, for example, the rule can ‘greatly expand access to Pay-by-Bank options, which offer lower transaction fees than credit or debit cards – savings that ultimately benefit consumers. It also broadens access to affordable credit by enabling cash flow-based underwriting.’
The US consumer can now give specific consent for data usage by specific third parties, while the rule strictly prohibits secondary uses outside of improving the solution covered by the initial consent. When the consumer does not renew their consent (after 12 months), the third parties must stop data collection and delete all data that was previously authorised.
While for the fintech world and the end consumer, the final rule was welcomed with applause, not the same could be said for the traditional players. For example, less than 12 hours after the final rule was announced and posted by the CFPB, the Bank Policy Institute and Kentucky Bankers Association reviewed the 600-page rule and filed a lawsuit against CFPB for jeopardising customers’ privacy and account security with its new rule. This indicates that not all financial players are on board with the new rule.
Also, back in 2016, Donald Trump pledged to repeal the Dodd-Frank and the US Congress followed suit and passed the Economic Growth, Regulatory Relief, and Consumer Protection Act which acted as a counter-measure for important sections of the Dodd-Frank Act. Then, in 2018, then-President Biden and the CFPB started to rescind rules from the Trump administration. Now, with Trump being elected again as President of the US, the CFPB pushes to have the new rule approved before the new administration takes office and sends efforts back if the past is any indicator.
As mentioned before, even if the rule mandating Open Banking has been only very recently finalised, the US had a very strong fintech presence already. Several players are responsible for driving innovation and infrastructure and here are just some of them:
Plaid: uses data aggregation to connect consumer accounts to fintech apps and financial institutions. It allows users to securely share their bank account information with services like Venmo, Robinhood, and other fintech apps. Plaid is widely recognised for its pioneering role in Open Banking infrastructure, providing API tools and secure access to financial data across the US.
MX: specialising in data aggregation, data enhancement, and financial management tools, it offers API-driven solutions that allow banks and credit unions to provide customers with clearer, actionable insights. Known for its user-centric data solutions, MX aims to empower institutions to improve customer engagement by making financial data more understandable and actionable.
Yodlee: owned by Envestnet, Yodlee is one of the oldest data aggregators in Open Banking, providing API connections to access financial data. It supports a broad range of financial institutions, with a long-standing focus on privacy and security. Yodlee was one of the first to create consumer-permissioned data solutions, making it foundational in the development of Open Banking in the US.
Finicity (owned by Mastercard): acquired by Mastercard, the company offers data aggregation services with a focus on secure access to financial information for lending and personal finance. It supports connectivity for mortgage and credit approval processes. Finicity's connections help make credit decisions more efficient, improving loan accessibility and affordability for consumers.
Akoya: a centralised platform for Open Banking and created by The Clearing House and major US banks. It provides a secure API-based system that allows consumers to share financial data without sharing passwords. Akoya has a unique position as it’s backed by banks and aims to increase security and control in data-sharing, acting as an intermediary between banks and third-party apps.
Flinks: provides data aggregation and analytics with a strong focus on the US and Canadian markets. It offers data solutions for credit risk analysis, lending, and other financial insights. With a specialised focus on data enrichment, Flinks enables financial institutions to derive insights and assess creditworthiness through comprehensive financial data.
Fiserv: a global fintech company that provides a wide range of payment and financial services to banks, merchants, and fintechs. Their solutions include payments, processing, and data management. With a strong presence across banks, credit unions, and merchants, Fiserv plays a critical role in bridging legacy banking systems with modern Open Banking solutions. Their infrastructure powers many behind-the-scenes processes for fintech applications.
Link Money: a recent entrant focused on enabling direct bank payments in the US by leveraging Open Banking principles. They allow merchants to accept payments directly from consumers' bank accounts, bypassing traditional card networks. Link Money stands out as a key innovator in US Open Banking payments, providing a viable alternative to traditional card-based payment systems. Their emphasis on security and cost-effectiveness aligns with the growing demand for open banking-based payment solutions.
Trustly: enables US consumers to pay directly from their bank accounts without using cards, offering an alternative payment method for online transactions. Trustly caters to the growing demand for secure, low-cost payment options, especially as merchants seek to lower transaction fees and improve cash flow.
TrueLayer: although based in the UK, has expanded to the US to provide Open Banking and data-sharing solutions with a focus on payments and identity verification. Known for its experience in the European Open Banking sector, TrueLayer brings expertise in compliant API management and secure consumer data-sharing, helping shape the US Open Banking landscape.
For years we have heard that Open Banking regulation is coming to the US. This year we could finally witness it happening, following the final rule released by the CFPB. The region has a strong fintech presence and ample collaboration between players to make consumers’ financial lives better, increase competition between players, open new revenue pools, and pave the way for Open Finance.
This editorial piece was first published in The Paypers' Open Finance Report 2024, the latest comprehensive market overview and analysis focusing on the key players and products within the Open Banking and Open Finance ecosystem. Download the full report to discover more insightful content.
Vlad is a Senior Editor at The Paypers, working on the Banking & Fintech team. He uses his research, content, and people skills for all activities revolving around Open Banking and Open Finance. Vlad has a degree in Biology and Molecular Genetics and an extensive background in creative writing. You can reach out to him on LinkedIn or email.
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