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Protocol | Fintech

Open banking in the US seems impossible. Here’s why.

Treasury Prime's Chris Dean explains why systematic access to financial data isn't an easy goal for the world's biggest economy to realize.

A view from One World Trade Center in New York City.

Open banking has been slow to come to the U.S.

Photo: Erol Ahmed/Unsplash

As open banking sweeps the world, countries from the U.K. to Australia to Chile to Nigeria are adopting the concept, which generally includes mandates for API access to bank infrastructure and consumer rights to banking data. There's global momentum behind it, but in the U.S. rule-making is still at an early stage. Reforms to Section 1033 of the Dodd-Frank Act, the law that governs consumer access to financial data, are seemingly years away as the Consumer Financial Protection Bureau weighs public comments.

If you want to talk about open access to banking data, you'd be hard-pressed to find a better expert than Chris Dean. He was CTO at startup Standard Treasury, which sold to Silicon Valley Bank, after which he headed API technology at the bank. He then started Treasury Prime to help connect banks with fintech companies.

Banking-as-a-service companies, which provide software and services for fintechs and banks alike, are growing quickly along with the larger fintech industry. Open banking could turbocharge the sector. There are considerable commercial pressures at work: Fintech companies want to quickly connect with chartered banks to do business and banks want to add new business while staying compliant with strict banking laws. Companies like Treasury Prime and many others are working on the tough challenges involved, which range from managing complex compliance rules to integrating new fintech technology with legacy banking infrastructure.

We caught up with Dean to talk about the challenges of the CFPB's rule-making on financial data; "true lender" rules, another crucial area of regulation; and how banks and fintechs can work together.

This interview has been edited for brevity and clarity.

Treasury Prime's Chris Dean. Treasury Prime's Chris Dean.Photo: Treasury Prime

What do you see happening with the CFPB's rule-making on Dodd-Frank's Section 1033? Why is this financial data rule important?

Boy, I want this to happen. I really really want this to happen. I have no faith that this is gonna happen. The largest banks — the top five to 10 banks — they have to be the ones who say it's OK because that's where the majority of accounts are. Until they give the thumbs-up that they really want to do this, I do not have a lot of faith here. I'm hopeful. I want this to happen, but I'm not hopeful. If [something like] PSD 2 [the European open-banking regulations] ... were to happen in the U.S., that would take us five or 10 years to actually implement it.

Why would it take so long?

Because of the nature of the banking structure in the U.S. One is that, there's about 10,000 (banking) institutions in the U.S. So that's 10,000 things that would have to change. Although the majority of the money is at Wells Fargo, JPMorgan, etc., there's still a lot of money in the long tail — trillions of dollars. That means you have to get 10,000 mom-and-pop banks and credit unions to add the technology to do this. This is not an easy problem.

Additionally, to make this work, our regulatory landscape is really fractured. There's the OCC, FDIC, state regulators. These are all different entities. And the bank charter comes from those entities. So who's going to enforce and mandate this? The obvious person is the FDIC because everyone wants to have their accounts FDIC-insured. But that doesn't mean every bank is FDIC-chartered. So that's why: too many regulators and too many financial institutions.

Fintechs say being able to easily access your data from a bank would make it better for consumers. Is that true?

It's a great idea. I love that too; it would make banking better. It's hard. I think really, if anyone was gonna do this properly it would be Early Warning. Early Warning has integrations with the bigger banks directly. [Note: The bank-owned company is also the provider of the Zelle money-transfer system.]

It's probably more likely that the people who should be implementing this, who would actually implement this, are FIS, Fiserv, Jack Henry. They're the actual people who are running the software for a bank.

What's your take on the "true lender" rule being changed? This is the regulation that lets fintechs pick a bank to partner with on loans and rely on that bank's home-state rules for interest rates that Congress recently moved to overturn.

I was surprised by the OCC rule change. What I'm less surprised by is that Congress got pissed off, because the whole point of "true lenders" is to make sure everyone's treated well and the fact that they're like, "Oh yeah, you could charge crazy interest rates," it's like, "No, no, that's what we're trying to stop."

It's hard to predict the future, and I am not good at predicting what politicians will do. But my expectation is this will all just roll back to what it used to be.

And Treasury Prime mostly deals with banks, and we have a lot of fintechs, too, but we're a close partner with a lot of banks. For some of them, this is a huge percentage of their business, where it's just too onerous for a fintech to ... go to all 50 states and D.C. and maybe Puerto Rico and follow the lending laws there. It's way easier to deal with a bank and say, "You've already done all that work that's pretty easy for you. Why don't you hold the loan and be the 'true lender' on it, and we'll buy it after a couple or three days?"

How much of a business is that?

It's a real business for the banks. There are about 4,500 commercially chartered banks in the U.S. Is this a legit business line for the banks? It 100% is. If you look at some of the numbers from some of the more popular fintech banks and how they've grown, yeah, it's a huge percentage of the fintech business. If you look at Cross River's numbers, a lot of that is Affirm, right?

The thing that we essentially do is we take a bank and we turn them into a fintech bank. Once the fintech bank exists, we can pull fintechs to them.

How do you help connect banks and fintechs?

Traditionally, there are two different cultures. A fintech generally doesn't know how banking works and a bank generally doesn't know how a startup technology company works. They work at different speeds. They have different needs. So what we do is we provide a technology solution to connect these two different worlds together. For the bank we make sure that their governance models are adhered to, because they have things they want to do and are willing to do and things they're not willing to do. And we make sure that our software enforces that. They have control of that.

For fintechs we make sure that it's really, really easy to get started. Our goal here is to make it as easy as to get started with AWS.

Is governance and compliance the main issue?

That's why Treasury Prime works. We came out of Silicon Valley Bank, but we did it inside of a bank first. Since we saw what the bank needed, we realized that the only way for these fintechs to be successful at scale is that the bank was really a true partner of theirs. And the bank had rules they have to follow.

I can't tell you the number of regulatory queries we've had to go through. With our technology, you can just say, "Here's every step we ever did on every one of my accounts right from when we opened it from scratch." And for the regulator, they're like, "That's great. We just want to make sure you're following the rules as we set out."

California recently said Chime couldn't use the word "bank." What are your thoughts on that?

In every contract I've ever seen between a fintech and a bank, there's a clause that says the bank has to approve the marketing. And this is part of it: Your name is part of your marketing.

None of our banks will allow anyone to call themself a bank, even if they spell it funny with a "c" instead of a "k."

And Chime can't say they're a bank, unless they're in fact a bank, which they indeed are not. They're a great company. I love the product.

Is there an example of a smaller bank that's doing well with innovation?

It's the banks who have the leadership, who are really forward-thinking. So, basically, what usually happens is the banks that pick their lane, their markets. One example is Provident. It's one of the oldest banks in the U.S. and they're doing the crypto stuff. It's all about the leadership who really understands where the puck is going and how the financial markets are changing and want to be part of that.

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