CFPB in the cross hairs; will talk of open banking die with it?

Not that I'm really predicting the demise of either, but...

anti-regulation types are definitely targeting the agency right now

Headlines abound about GOP lawmakers particularly against regulation in the financial industry, emboldened by the party's new dominant position across all branches of federal government, looking at ways to seize the advantage and weaken or even eliminate the Consumer Financial Protections Bureau (CFPB). Headlines range from alarmist to dismissive, but there is definitely a lot of buzz about it right now.

So let's not talk about whether or not it's going to happen. Let's just posit that something does happen. Something big. Either the administration puts in a new director diametrically opposed to the organization's raison d'etre, as Trump has been want to do for other agencies, or the agency itself is shuttered all together.

Again, I don't necessarily think either will happen. What I'm interested in is how this kind of thing will be perceived by my colleagues in the banking sector if it does happen. It's a thought experiment.

open banking

The term "open banking" probably means a lot of things to a lot of people. But where I live, in banking technology, we tend to talk about it as a need or mandate to share data from our product systems with new players in the financial services industry, in particular digital startups that have been dubbed "FinTechs." Such companies are creating innovative new services like personal financial dashboards, person to person payments, micro-savings and investment accounts, robo-advise investing, and no fee mobile stock trading, to name only a few. In many cases, the services rely on data about the customers' existing deposit or credit accounts, including their identifier numbers and routing numbers, balances, and transaction histories. Consequently, to serve customers that we have in common, FinTechs want access to the data banks already store for our customers.

our initial reaction to open banking

We in banking technology have spent a lot of time and money on making sure we keep our customers' data safe from unauthorized access, and we take great care to ensure that we don't exploit the data for uses that our customers haven't consented to. That's quite a big thing for us. So much so that it's almost imprinted on our DNA, I'd say.

So, when someone comes along, as did Richard Cordray, the current director of the CFPB, and says that our customers probably should have a right to share the data that we store about them with other companies on request, it causes a bit of a stir. First, to do that, it will take a lot of unwinding of plumbing, some of which was put in place specifically to prevent easy access to data. But more importantly, we've got to wrap our minds around more free use of data, after spending decades or more carefully guarding our customer's information from use (and abuse) by others, and even ourselves.

some of my colleagues might be happy to see Cordray go

Or the weakening, or even demise, of the CFPB. They might think that that means the end of all of this talk about sharing data between banks and FinTechs. That would just make our lives easier, quite frankly. But this, I think, is naive, or short sighted at least.

Why? Because...

open banking in some form is inevitable

investment is definitely there

There is a lot of money being invested in FinTech, in North America and globally.

those who say that customers have a right to share their data have a point

Look at it this way: I am not only an employee of an longtime established bank, but I'm a customer too. If I want to sign up for independent financial advice, or use accounting software, my bank isn't going to tell me that I can't log in and download the details about my accounts and transaction history to show them to a financial adviser or input into a personal accounting system. In fact, even before the Internet age, the bank sent me a copy of that data on a regular basis since I opened my first account more than 30 years ago, in form of monthly statements, that I could use as I see fit. Why? Because that data is mine as much as it is the bank's. No one would seriously argue otherwise.

FinTech services are pretty darn cool

If you haven't checked them out yet, take a look. Many of the new services coming out of FinTech companies are quite compelling. Most often, they layer over top of bank services like deposit accounts, credit cards, and payments new enabling technology that is either already super popular among consumers, like web and mobile, or are poised for similar explosive growth, like AI and blockchain, or both. Examples include:

• Sending money to family and friends, domestically or overseas, from your bank accounts, with your phone
• Splitting purchases between friends and families with your phones, and drawing the funds from your bank accounts
• Saving for future purchases, or investing for retirement, by tucking away small amounts rounded from payments made every day from your bank accounts
• Managing finances and planning for the future from a dashboard bringing together history from all your banks
• Capturing expense details with your phone camera, matching them to bank transactions, and directing reimbursement to bank accounts of your choice
• Automatically populating bank transactions into your accounting software and magically categorizing them and matching them to sales and expense entries

That is just a few of them. The list is long and growing. And you might have noticed that they are services that it could be difficult for banks to implement on their own. Either they are outside of our traditional fields of expertise, or they would be of limited appeal if each bank were to offer the service for their customers in isolation.

customers want FinTech services, especially more valuable customers

Adoption of FinTech services is not insignificant today. Worldwide, over 15% of banking customers on average use FinTech services. To give you some perspective, for my own bank alone, that means that there are somewhere in the neighborhood of 2 million customers we share with FinTechs.

What's more important, the more money customers make, the more likely they are to use FinTechs, with adoption rates peaking at over 50% in the 18-54 crowd making in excess of $150,000 a year, and growth expected across all demographics in coming years.

my prediction: open banking is going to happen

Maybe it won't be in the form imagined by regulators today. Maybe it won't be free to FinTechs. Maybe there will be strings attached. That kind of thing will get worked out by people more business savvy than me. But ultimately I think it will be consumer demand for convenient new financial services that will trump (pardon the pun) our bankers' ingrained tendencies towards being very careful with our customers' information and data. Ultimately we'll have to find a balance between respect for customers' privacy and their own desires to share their information with other players in the digital marketplace. We'll need to figure out how to share data in secure ways that do not violate care and consent rules. Because our customers want us to. Banks do not ignore the desires of their customers. Especially the wealthy ones. Not in my experience.

so bon chance to the CFPB and Director Cordray!

But regardless of their fates, something tells me that, as a banking technologist, I will be working hard to enable some form of open banking in the very near future. Should the CFPB be weakened or eliminated, there will be little or no reprieve from the need to come to grips with open banking. Political administrations come and go, regulators too, but consumer thirst for convenience is strong and likely to outlast any election cycle.