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.

Climate

The fight to define the carbon offset market's future

The world’s largest carbon offset issuer is fighting a voluntary effort to standardize the industry. And the fate of the climate could hang in the balance.

It has become increasingly clear that scaling the credit market will first require clear standards and transparency.

Kevin Frayer/Getty Images

There’s a major fight brewing over what kind of standards will govern the carbon offset market.

A group of independent experts looking to clean up the market’s checkered record and the biggest carbon credit issuer on the voluntary market is trying to influence efforts to define what counts as a quality credit. The outcome could make or break an industry increasingly central to tech companies meeting their net zero goals.

Keep Reading Show less
Lisa Martine Jenkins

Lisa Martine Jenkins is a senior reporter at Protocol covering climate. Lisa previously wrote for Morning Consult, Chemical Watch and the Associated Press. Lisa is currently based in Brooklyn, and is originally from the Bay Area. Find her on Twitter ( @l_m_j_) or reach out via email (ljenkins@protocol.com).

Sponsored Content

Great products are built on strong patents

Experts say robust intellectual property protection is essential to ensure the long-term R&D required to innovate and maintain America's technology leadership.

Every great tech product that you rely on each day, from the smartphone in your pocket to your music streaming service and navigational system in the car, shares one important thing: part of its innovative design is protected by intellectual property (IP) laws.

From 5G to artificial intelligence, IP protection offers a powerful incentive for researchers to create ground-breaking products, and governmental leaders say its protection is an essential part of maintaining US technology leadership. To quote Secretary of Commerce Gina Raimondo: "intellectual property protection is vital for American innovation and entrepreneurship.”

Keep Reading Show less
James Daly
James Daly has a deep knowledge of creating brand voice identity, including understanding various audiences and targeting messaging accordingly. He enjoys commissioning, editing, writing, and business development, particularly in launching new ventures and building passionate audiences. Daly has led teams large and small to multiple awards and quantifiable success through a strategy built on teamwork, passion, fact-checking, intelligence, analytics, and audience growth while meeting budget goals and production deadlines in fast-paced environments. Daly is the Editorial Director of 2030 Media and a contributor at Wired.
Policy

White House AI Bill of Rights lacks specific guidance for AI rules

The document unveiled today by the White House Office of Science and Technology Policy is long on tech guidance, but short on restrictions for AI.

While the document provides extensive suggestions for how to incorporate AI rights in technical design, it does not include any recommendations for restrictions on the use of controversial forms of AI.

Photo: Ana Lanza/Unsplash

It was a year in the making, but people eagerly anticipating the White House Bill of Rights for AI will have to continue waiting for concrete recommendations for future AI policy or restrictions.

Instead, the document unveiled today by the White House Office of Science and Technology Policy is legally non-binding and intended to be used as a handbook and a “guide for society” that could someday inform government AI legislation or regulations.

Blueprint for an AI Bill of Rights features a list of five guidelines for protecting people in relation to AI use:

Keep Reading Show 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.

Enterprise

Microsoft’s new chief partner officer: 'Customers need help'

The new Microsoft Cloud Partner Program forces new certification requirements on the hundreds of thousands of partners that sell and support its products and services. Nicole Dezen says those changes now give customers “total clarity” into which ones are best suited to meet their cloud needs.

Nicole Dezen, Microsoft's chief partner officer, talked with Protocol last week about the company's announcement.

Photo: Microsoft

As Microsoft launches the biggest overhaul of its partner program today since 2010, its new chief partner officer says the changes will help enterprises and other customers more easily identify qualified partners that are the right fit to help with their cloud needs.

“All of our priorities, all of our design principles, are built with the customer in mind,” Nicole Dezen, Microsoft’s chief partner officer and corporate vice president of global partner solutions, told Protocol in an exclusive interview, her first since being appointed in July.

Keep Reading Show 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.

Workplace

An IPO may soon be in Notion’s future

Notion COO Akshay Kothari says there’s room to grow, aided by a new CFO who knows how to take a company public.

Notion has hired its first chief financial officer: Rama Katkar.

Photo: Courtesy of Notion

It’s been a year since Notion’s triumphant $275 million funding round and $10 billion valuation. Since then the landscape for productivity startups trying to make it on their own has completely changed, especially for those pandemic darlings that flourished in the all-remote world.

As recession looms, companies looking to cut costs are less likely to spend money on tools outside of their Microsoft or Google workplace bundles. Enterprise platforms are bulking up and it could spell trouble for the productivity startups trying to unseat them. But Notion COO Akshay Kothari says the company is still aiming to build the next Microsoft, not be the next Microsoft. And in a move signaling a new chapter of maturity, Notion has hired its first chief financial officer: Rama Katkar, Instacart’s former VP of finance.

Keep Reading Show less
Lizzy Lawrence

Lizzy Lawrence ( @LizzyLaw_) is a reporter at Protocol, covering tools and productivity in the workplace. She's a recent graduate of the University of Michigan, where she studied sociology and international studies. She served as editor in chief of The Michigan Daily, her school's independent newspaper. She's based in D.C., and can be reached at llawrence@protocol.com.

Latest Stories
Bulletins