4 perspectives for bankers to note in the industry's data-sharing debate

Published October 13, 2022 8:57 AM

Updated December 19, 2022 11:11 AM

1 Min Read

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With consumers increasingly using online banking and mobile apps, and agreeing to share their financial information without necessarily realizing what they are signing up for, the data-sharing debate is becoming more intense.

Read our roundup to hear different perspectives from BankThink on how the industry is responding to the challenges and opportunities inherent in open finance.

A principles-based approach to data sharing is favored by industry experts

A consumer's right to access their own bank account and transaction data, as detailed in the data sharing provisions of the Dodd-Frank Act, is soon to be up for discussion and rulemaking by the CFPB.

Typically, this would involve a complicated, time-consuming process drafting a rule to cover every eventuality and all the issues connected to data rights, but this may not be the best way to serve the market and consumers.

Instead, industry experts suggest a better way would be to follow CFPB Director Rohit Chopra's advice to abandon "highly complicated rules" in favor of a principles-based approach that leverages the core principles of data access.

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CFPB should write a data sharing rule that can evolve with the market

Problems loom on the horizon if data sharing rulemaking sees further delay

The CFPB's advanced notice of proposed rulemaking on data sharing has long since passed and now the agency's anxieties over data privacy look likely to result in further delays.

While the data privacy of consumers is a legitimate CFPB concern, the industry recognizes the importance of data privacy standards and favors action sooner rather than later.

The more time that passes by without a rulemaking, the harder it will be for the CFPB to replace the current jumble of decentralized, asymmetrical data privacy standards with legally binding standards that protect consumers and their financial data.

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Delaying CFPB's data sharing rule will only create more problems down the road

In the drive toward data sharing, banks need to be mindful of the risks, too

Open banking offers greater efficiency and improved functionality, and has the potential to make the financial lives of consumers easier and more convenient, while providing banks with new opportunities for revenue growth.

But while sharing highly confidential bank and credit card transaction data with everyone may deliver speed, convenience and efficiency, it also increases the risk of execution failure and third-party fraud.

With open banking growing in popularity in Europe and Asia, putting pressure on the U.S. organizations to follow suit, financial institutions need to proceed cautiously with their data sharing initiatives.

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The dark side of financial data sharing

Regulation is the way to the promised land of open finance

At a time when many Americans are not feeling confident about their financial wellness, open finance, which makes financial data accessible to everyone, has the potential to deliver significant benefits for both consumers and financial institutions.

Leveraging networks of secure connections via application programming interfaces (APIs), open finance allows customer-permissioned data and services to move freely and efficiently between banks and third-party providers.

But with data access reaching a key inflection point, it's becoming clear that regulation spearheaded by the CFPB is going to be crucial if the industry is to move forward.

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Open finance is the future of banking