Fintech

Banks and fintechs battle over financial data

In CFPB rule-making, fintech companies want more access to data. But banks beg to differ.

Banks and fintechs battle over financial data

Fintech companies are pushing for rules that allow consumers to access this data more easily through new fintech products.

Photo: Getty Images

The Consumer Financial Protection Bureau is preparing to change its rules on financial data, and a battle is brewing between existing financial institutions that control it, such as banks, and the upstart fintechs lookingto unlock this data.

In one of the key regulatory fintech areas under review, Section 1033 of the Dodd-Frank Act, the changes could have a major impact on how consumers can access and move their financial data between banks, fintechs and other companies — as well as which companies become consumers' go-to source for financial services. The deadline for submitting comments on changing these rules was Thursday.

Fintech companies are pushing for rules that allow consumers to access this data more easily through new fintech products.

A group of 21 companies — including Plaid, TransferWise, Dave, Credit Karma and Gusto, as well as the MarketPlace Lending Association, whose members include Affirm and SoFi — wrote a letter to the CFPB arguing that consumers be able to authorize fintech companies to access this data more freely.

Meanwhile, banks and other financial institutions are pushing back against this accessibility, arguing that there are cybersecurity risks involved with sharing data and that the costs are prohibitive in implementing this technology.

The fintech companies, which do things such as help consumers track spending, save, decrease debt, improve credit scores and access loans, say that consumers need access to their financial data in order to achieve these goals. "To use our services, consumers rely on their ability to authorize the sharing of their financial data," the group wrote.

But banks and other "data holders" that have this data through a direct relationship with consumers have not shared the data with other companies in the same way they do for their own apps, the fintech companies say. "Understandably, data holders have an advantage in this current system: as data holders they can impose limits on what type of data is shared, how it is shared, and who it is shared with," the letter to the CFPB says. "When consumers lack control over their own financial data, they are impeded from accessing financial services they want to use."

However, companies' access to this financial data could put the burden of cost on banks and credit unions, without fintech companies paying their share, the Credit Union National Association wrote in its comments to the CFPB. "CUNA is concerned about the cost of market failures if a rule develops that requires credit unions to give free access to its financial data or other proprietary intellectual property," the comment reads. "In this particular instance, financial services providers invest significant resources in time, money, and continued upkeep for their databases, online access, and organized details about transactions. If third parties can access and use this data without paying their fair share, these third parties are free-riders."

Consumers may also be confused about the difference between fintech companies and credit unions, CUNA wrote. "Credit unions are concerned that consumers will encounter businesses offering financial services similar to a credit union or bank without realizing that these non-regulated entities do not provide the same data security, privacy, and consumer protections as regulated financial [institutions]," CUNA wrote.

Cybersecurity is also a risk, CUNA wrote. "Currently, there are regulatory gaps that fintech and other companies exploit to provide financial services. This leads to less consumer protection and, at its worst, leads to the exploitation of consumers as their expectation of consumer protection has historically been based on the regulation of financial institutions and the products and services they offer."

Of course, when this data access is limited, fintech companies can't do what they want to do: create and build new products such as savings, budgeting or lending apps. The lack of access to this data could make many fintech companies' products much less useful, and therefore much less valuable. It's hard to budget on an app when the spending or savings data is days or weeks old, for instance.

The fintech companies argue that this data belongs to consumers and they should be able to share it with whichever app or company they want. "Consumers' financial data belongs to consumers, and their access to that data should not depend on who is currently holding that data," the letter says.

The group is asking that banks and other data holders not be allowed to limit this data access and data sharing. "Right now some data holders restrict consumers' ability to access their own data, which prevents consumers from benefiting from financial technology," they wrote. "The Bureau should require that a data holder can not limit any information that can be reasonably construed as belonging to the consumer for both direct and authorized access."

Notably, Plaid said it would welcome direct regulatory supervision of data aggregators such as Plaid as part of larger changes to regulating this sector. But until that happens, Plaid suggests that CFPB can exercise "supervisory authority" over companies that provide data aggregation services to banks, according to John Pitts, policy lead at Plaid.

Plaid is also asking for "full parity" between direct data access from, say, a consumer's bank and other access through another fintech company that the consumer authorizes. In other words, a consumer should be able to access the same data directly from a bank and through another provider.

Plaid isn't asking for specific types of data that should be accessible to fintechs to be named, but it is asking CFPB to create broader rights for consumers and principles for data that should be made available to consumers and fintech companies they want to authorize.

The CFPB shouldn't allow data holders such as banks to restrict access to the data just to support their competition against other companies, Plaid said. For example, some banks don't update certain data as often for aggregators as they do for their own mobile apps; some do it only once a day, Plaid said, but having continuous access to this data is needed for personal finance tools and budget tracking.

When banks limit updates to this data, for example to once a day, the data in fintech apps is "outdated" for any spending or deposits made after that point in the day. "[T]his can result in consumers making spending choices based upon inaccurate information presented in their third-party applications," Pitts said.

This is also a competitive issue, Pitts said, because "limiting updates can make third-party services ineffective for consumers, and at the very least inferior to the data holder's own services, leading to diminished competitiveness among these providers."

The Bank Policy Institute, a group representing the banking industry, said that industry groups should set technical standards for accessing this financial data, which would ensure "innovation and competition." "The CFPB should encourage market-driven solutions and avoid engaging in specific technical standard setting for consumer data sharing," BPI wrote in its comments.

In its comments, the American Bankers Association argued against the CFPB defining what data fields should and shouldn't be regulated. "A more prescriptive approach is not only unnecessary but may undermine the progress that has already taken place and risks leaving consumers exposed if undertaken too narrowly," the ABA wrote.

Fintech

Judge Zia Faruqui is trying to teach you crypto, one ‘SNL’ reference at a time

His decisions on major cryptocurrency cases have quoted "The Big Lebowski," "SNL," and "Dr. Strangelove." That’s because he wants you — yes, you — to read them.

The ways Zia Faruqui (right) has weighed on cases that have come before him can give lawyers clues as to what legal frameworks will pass muster.

Photo: Carolyn Van Houten/The Washington Post via Getty Images

“Cryptocurrency and related software analytics tools are ‘The wave of the future, Dude. One hundred percent electronic.’”

That’s not a quote from "The Big Lebowski" — at least, not directly. It’s a quote from a Washington, D.C., district court memorandum opinion on the role cryptocurrency analytics tools can play in government investigations. The author is Magistrate Judge Zia Faruqui.

Keep ReadingShow less
Veronica Irwin

Veronica Irwin (@vronirwin) is a San Francisco-based reporter at Protocol covering fintech. Previously she was at the San Francisco Examiner, covering tech from a hyper-local angle. Before that, her byline was featured in SF Weekly, The Nation, Techworker, Ms. Magazine and The Frisc.

The financial technology transformation is driving competition, creating consumer choice, and shaping the future of finance. Hear from seven fintech leaders who are reshaping the future of finance, and join the inaugural Financial Technology Association Fintech Summit to learn more.

Keep ReadingShow less
FTA
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.
Enterprise

AWS CEO: The cloud isn’t just about technology

As AWS preps for its annual re:Invent conference, Adam Selipsky talks product strategy, support for hybrid environments, and the value of the cloud in uncertain economic times.

Photo: Noah Berger/Getty Images for Amazon Web Services

AWS is gearing up for re:Invent, its annual cloud computing conference where announcements this year are expected to focus on its end-to-end data strategy and delivering new industry-specific services.

It will be the second re:Invent with CEO Adam Selipsky as leader of the industry’s largest cloud provider after his return last year to AWS from data visualization company Tableau Software.

Keep ReadingShow less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Image: Protocol

We launched Protocol in February 2020 to cover the evolving power center of tech. It is with deep sadness that just under three years later, we are winding down the publication.

As of today, we will not publish any more stories. All of our newsletters, apart from our flagship, Source Code, will no longer be sent. Source Code will be published and sent for the next few weeks, but it will also close down in December.

Keep ReadingShow less
Bennett Richardson

Bennett Richardson ( @bennettrich) is the president of Protocol. Prior to joining Protocol in 2019, Bennett was executive director of global strategic partnerships at POLITICO, where he led strategic growth efforts including POLITICO's European expansion in Brussels and POLITICO's creative agency POLITICO Focus during his six years with the company. Prior to POLITICO, Bennett was co-founder and CMO of Hinge, the mobile dating company recently acquired by Match Group. Bennett began his career in digital and social brand marketing working with major brands across tech, energy, and health care at leading marketing and communications agencies including Edelman and GMMB. Bennett is originally from Portland, Maine, and received his bachelor's degree from Colgate University.

Enterprise

Why large enterprises struggle to find suitable platforms for MLops

As companies expand their use of AI beyond running just a few machine learning models, and as larger enterprises go from deploying hundreds of models to thousands and even millions of models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

As companies expand their use of AI beyond running just a few machine learning models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

Photo: artpartner-images via Getty Images

On any given day, Lily AI runs hundreds of machine learning models using computer vision and natural language processing that are customized for its retail and ecommerce clients to make website product recommendations, forecast demand, and plan merchandising. But this spring when the company was in the market for a machine learning operations platform to manage its expanding model roster, it wasn’t easy to find a suitable off-the-shelf system that could handle such a large number of models in deployment while also meeting other criteria.

Some MLops platforms are not well-suited for maintaining even more than 10 machine learning models when it comes to keeping track of data, navigating their user interfaces, or reporting capabilities, Matthew Nokleby, machine learning manager for Lily AI’s product intelligence team, told Protocol earlier this year. “The duct tape starts to show,” he said.

Keep ReadingShow less
Kate Kaye

Kate Kaye is an award-winning multimedia reporter digging deep and telling print, digital and audio stories. She covers AI and data for Protocol. Her reporting on AI and tech ethics issues has been published in OneZero, Fast Company, MIT Technology Review, CityLab, Ad Age and Digiday and heard on NPR. Kate is the creator of RedTailMedia.org and is the author of "Campaign '08: A Turning Point for Digital Media," a book about how the 2008 presidential campaigns used digital media and data.

Latest Stories
Bulletins