Consumers will suffer without rights to their data
The ability of Americans to see their total financial picture across multiple financial institutions and quickly access technology-based tools to analyze their financial data is no longer theoretical. The fintech industry provides this capability to millions of consumers.
But for fintech to work for consumers, Americans must have the right to safely and securely access and permission their transaction-level data to be shared with those technology-based tools. Although the Dodd-Frank Act sought to strengthen consumers’ ability to access and share their own data, there currently exists no regulatory clarity with regard to how that right is guaranteed to the consumer.
Policymakers have taken notice of this issue. In February, several companies and organizations within the financial services community, including the Consumer Financial Data Rights group — an organization we helped form with several other fintech companies earlier this year — submitted letters to the Consumer Financial Protection Bureau in response to its request for information regarding consumer access to financial records.
We, at the CFDR, believe that the consumer’s right to his or her data must be asserted and protected, and that the industry needs to establish a clear set of rules and standards through which safe and secure financial data access and sharing continues unrestricted.
Without clear regulatory requirements, financial institutions have the ability to restrict their customers’ access and right to leverage their financial data to power fintech tools wherever they see fit.
While some banks offer their customers an easy and efficient mechanism for sharing their data, others may restrict customer data access. In many cases, the amount of access could vary — i.e., some banks offer only a limited data set of information for customers to share, or are inconsistent in making the data available through varying contractual terms with third parties that dictate frequency of data access.
Sometimes banks choose not to allow customers to share any of their financial information with the kinds of innovative technology tools that could help them improve their financial wellness. And for many customers, these limitations might not be clear, but the potential implications are severe.
Imagine, for example, if you opened your mailed bank statement one month and suddenly found that several transactions had been redacted in thick, black marker. In the technology revolution, consumers won’t see this type of tangible data limitation. However, the existence of this limitation threatens the consumer’s ability to use the budgeting tool he or she employs to manage his finances on a monthly basis, for example.
Many technology innovators, including those of us who formed the CFDR, support the consumer’s right to unfettered access to their financial data. Ultimately, all players in the financial services arena have an obligation to provide consumers and small businesses with the information and tools they need to improve their financial well-being. In the technology revolution, the ability to use powerful fintech tools must be recognized as a fundamental right of the consumer.
The state of financial affairs for consumers, both in the U.S. and globally, is in many respects very poor. According to a Federal Reserve report, many Americans today are struggling financially, with 31% of survey respondents indicating they have no retirement savings, and nearly half of American households saying they’d have to incur debt or sell assets to pay for a $400 emergency expense. Access to financial data and the ability to share that data with innovative third-party applications and technologies, enables — among other things — consumers to efficiently protect themselves against fraud, avoid unnecessary fees, automate savings and gain access to credit.
Technology innovation in the financial services arena can create inroads for new and currently underserved consumers to access financial services. According to a recent survey by Blumberg Capital, many Americans (65% of survey respondents) agree that fintech gives consumers access to services previously available only to the wealthy, while 69% said that such technology will help people be better off financially. That same survey found that a majority of Americans (75%) believe that fintech gives them more power over their finances.
Competition in financial technology innovation, especially between different types of institutions, benefits consumers in the long run. It drives down prices and incentivizes companies to innovate and create better products or services. According to 2016 McKinsey research, there were more than 2,000 fintech startups vying for market share in different subsectors. And globally, nearly $23 billion of venture capital and growth equity was deployed to fintech firms between 2008 and 2014, with $12.2 billion deployed in 2014 alone.
Sure, financial institutions frequently cite security concerns as a rationale for limiting their customers’ access to their financial data. But, broadly speaking, security is a very real issue that all of us in the industry play important roles in maintaining — financial institutions, fintech innovators and other permissioned third parties take significant measures to protect the security of financial data being accessed, and many fintech firms are subject to third-party audits and due diligence by their bank partners. Additionally, financial institutions and third parties alike must comply with the privacy provisions in the Gramm-Leach-Bliley Act, which requires adequate notice to the customer if he or she wishes to share personal financial information with a third party. Further, some fintech firms with contractual relationships with large financial institutions are already supervised by the federal prudential bank regulatory agencies.
Consumers’ permissioned financial data is the fuel that will drive the technology revolution in the financial services industry. Further coordination among all stakeholders in the data access debate, including financial institutions, fintechs, regulators and consumers, will be critical in the continuation of a secure, inclusive and innovative financial data-sharing ecosystem that has existed for the last 20 years. The end result is a healthy, competitive industry, with clear regulatory requirements under which we’re all working toward a common goal that places the consumer at the forefront.