Open banking may have its roots across the pond, in the United Kingdom, but it’s fair to say the United States is quickly putting its own stamp on the practice.
The age of data portability is fast upon us. Back in July, the Biden administration issued an executive order that urged the Consumer Financial Protection Bureau (CFPB) to move ahead with open banking efforts, and to make it easier for end consumers to share their data with FinTechs and other third-party providers.
More recently, this past week, and with an eye on overdraft fees, the CFPB has said it will emphasize open banking, in way that implicitly will pressure financial institutions (FIs) that levy those penalties. More succinctly, the Bureau wants to make it easier for consumers to be able to take their business where they want, and take their data with them, too.
As CFPB Director Rohit Chopra said, switching bank accounts isn’t easy. Doing so, he remarked this week, “involves new account numbers, new debit cards, updating direct deposit, updating auto-debits, and much more.” With open banking in place, “It will be harder for banks to trap customers into an account for the purpose of fee harvesting,” he added.
Read also: CFPB Blasts Unfair Overdraft Fees, Capital One Says It’s Eliminating Them
We note that this is not the opening salvo in open banking here in the states — any number of companies have been endeavoring to tap new (permissioned) data sources to create new financial products and services.
But the CFPB actions and the Biden order represent what we might term a top-down approach. The question remains: Even though the groundwork may be laid for consumers to vote with the proverbial feet, the question remains: Will they?
Trust is a key factor in making the leap, as consumers view the connected economy as something they want to be part of, but worry, at the same time, about their data.
Recent research by PYMNTS, in collaboration with MX, across more than 2,300 individuals, found that there remains considerable worry — among 42% of respondents — about sharing details with third parties. But 82% of respondents have a third-party financial app that could be connected to a bank account. As many as 47% of the overall pool of consumers queried stated that they would be comfortable connecting digital wallets to their accounts.
Read here: 42% of US Consumers Worry About Security of Bank Account Credentials Shared with Third Parties
The tools are there, so to speak, for greater connectivity. But here and there, we continue to see that the hackers continue to be brazen (and successful!) in their attempts to steal bank account details, which in turn means that consumers may be hesitant to share data at all, at least until safety demonstrably improves. Case in point: In recent days, news reports showed that a number of apps in the Google Play store were artfully disguised malware that were then used to steal consumers’ banking data (the apps were downloaded hundreds of thousands of times).
No easy fix lies ahead for making the leap, wholeheartedly, into open banking here in the states, but trust — that critical glue that binds consumers to banks and innovative third-party providers — can be built up over time.
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