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  • Writer's pictureW.B. King

Plaid’s 2023 Fintech Prediction: U.S. Open Banking Legislation Will Cause Major Market Shift

By W.B. King

Noting that open banking has been a successful model in Europe for a number of years, Plaid’s Co-founder and CEO Zach Perret believes scheduled updates to the Dodd-Frank Act (section 1033) will move the needle in the United States.

“I expect that when this rule gets written and the structure is finally in place, we are going to see an enforcement of open banking standards within the United States [this year], which I’m incredibly excited for,” Perret said during a webinar hosted by Plaid, taking place in mid-January, 2023.

The San Francisco-based Plaid builds data transfer networks that power fintech and digital finance products. Founded in 2013, and with a network covering 11,000 financial institutions across the U.S., Canada, United Kingdom and Europe, Plaid counts MSU Federal Credit Union, Venmo and SoFi among its customers.

Personal Financial Data Rights

In October 2022, the Consumer Financial Protection Bureau (CFPB) outlined options to “strengthen consumers’ access to, and control over, their financial data as a first step before issuing a proposed data rights rule that would implement section 1033 of the Dodd-Frank Act.”

Among these options is considering the ability for consumers to “more easily and safely walk away from companies offering bad products and poor service and move towards companies competing for their business with alternate or innovative products and services.”

CFPB’s Director Rohit Chopra said in a statement: “Dominant firms shouldn’t be able to hoard our personal data and appropriate the value to themselves,” he continued. “The CFPB’s personal financial data rights rulemaking has the potential to jumpstart competition, giving Americans new options for financial products.”

According to the CFPB, the rule-making process includes seeking feedback from small entities on the proposals under consideration no later than January 25, 2023. After feedback is aggregated, the panel is scheduled to prepare a report on the input received and develop a proposed rule.

While Perret acknowledged that an agreed upon open banking regulation will take “a lot to work to get there,” he remains optimistic. “Between the regulators, the banks, the fintechs — there is a lot of consultation and conversation going on, but I think this is the year.”

Joining Perret on the webinar was Plaid’s Head of Financial Access Ginger Baker, who holds a slightly different view.

“I want to be a little bit contrarian for the purposes of debate, but I don’t think open banking will become a reality in the U.S. this year because I already think open banking and open finance are already a reality in the U.S.,” she said. “So even though the regulation might not be in place or may not be solidified, I actually think the market and the people have spoken.”

Juxtaposing the European open banking model, Baker applauds the U.S. approach to regulation.

“This is really healthy because they have allowed the market — people and businesses — to evolve and innovate along with some guidance along the way,” she continued. “But they are using consumer demand to exemplify the kinds of things fintech can do and then use those examples to help shape the policy.”

Fundamental Phase Shift

Plaid’s Head of Policy John Pitts told the webinar’s audience that the company will be submitting a 115 page document to the CFBP in support of section 1033 of the Dodd-Frank Act.

“This regulation will create a fundamental phase shift because what the CFPB has proposed in their initial proposal really comes down to two basic things that matter,” Pitts said. “One, the consumer does fundamentally have a right to access their financial data wherever it is, and two, it has to work basically 100% of the time.”

To better define the “profound” market shift he foresees, Pitts said, “Your best open banking experience today, which I know is on Plaid, is going to be your median experience in open finance experience next year, and your best open finance experience next year is going to be your median open finance experience in 2025.”

Pitts then half-joked to Perret: “Now Zach, please have the engineers cash that check I just wrote…but it is a phase shift that you [the public] don’t even realize what the impact is going to be — it’s going to be dirt roads to superhighways.”

Taking Pitts' comments in stride, Perret responded with a smile: “No pressure, but we have to substantially improve the products overall. I think the direction is clear: Open banking is here to stay. It’s just a question of how good it can possibly get and that makes me really excited.”

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