Open banking took more than a decade. But it’s drawing close.
Illustration: Christopher T. Fong/Protocol

Open banking took more than a decade. But it’s drawing close.

Protocol Fintech

Good day, and welcome to Protocol Fintech. This Monday: open banking, Mastercard’s crypto partnership, and defining “buy now, pay later.”

Opening up banking

It’s been 12 years since Congress passed the Dodd-Frank Act, the largest Wall Street reform in American history. The effects of the bill have been far-reaching, but one key part, Section 1033, has been on hold all this time.

Now, finally, an end appears to be in sight. The Consumer Financial Protection Bureau, the agency tasked with rule-making under Section 1033, has signaled that the issue will go before its small business review panel before the end of the year.

  • The provision was meant to provide marching orders to banks and fintech firms looking to share data and grow their businesses by providing new digital services to customers, like budgeting software and online bill pay. Most importantly, it mandates that data should also be made available to the consumer.
  • The CFPB’s press office did not respond to the direct question of why rule-making has taken over a decade. But the bureau’s director, Rohit Chopra, was appointed last year and has suggested open banking is an issue he’s eager to tackle.
  • Most experts agree that the best way to securely transmit that data is through the use of open, direct APIs. According to hosts and two attendees, Chopra clarified at the Fintech Policy Forum last month that impending rules would place guardrails on what APIs should and should not do, rather than forcing the implementation of a single standard.

An industry group called the Financial Data Exchange, or FDX, has been a key player in generating surprising cohesion between fintechs, banks, and consumer groups. Though FDX doesn’t advocate for specific policy proposals, its approximately 230-organization membership has settled on a single open API standard it thinks should adequately address any regulatory or industry concerns.

  • Banks’ argument, historically, has been that data sharing should be minimized in order to ensure financial and data privacy. Fintechs, meanwhile, feel that customers should be able to share as much of their own data as they would like so they can use fintech products and services — positions that, for the most part, have remained the same ever since.
  • But FDX has found compromises. The threat of screen scraping has forced banks to come around to the idea of using open APIs, while impending regulation has forced fintechs to come to the table too. FDX’s organizing structure, which allows companies big and small only one vote on major proposals, also helps generate consensus
  • “Once you start getting everyone together, you realize there’s a lot of commonality,” Don Cardinal, FDX’s managing director, told Protocol.

There still remain a few unanswered debates in open banking, however, that the CFPB will need to settle. FDX’s standard suggests interoperable data formats that should be used, but does not force any firm to comply, for example. The diversity of the financial system in America also allows for many niche perspectives that may be yet unaccounted for — namely small regional banks and credit unions. But Cardinal said his sources on Capitol Hill tell him that draft rule-making can be expected six months after panel review, and rules 90 days after that, putting the end of what would be a 12-year wait for rules governing the field of open banking sometime near August 2023.

— Veronica Irwin (email | twitter)

A version of this story first appeared on Protocol.com. Read it here.

A MESSAGE FROM AT-BAY

In 2021, there were 236 million cyberattacks worldwide. If there’s an opportunity to enter a business’s premises undetected, cybercriminals will find it. In the digital age, no organization is safe from cyberthreats. Size doesn’t matter.

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On the money

Mastercard wants to help banks offer crypto trading. The payments giant is partnering with Paxos on a product that will help banks handle the compliance and security of offering crypto transactions to customers.

Coinbase users who lost money to scams are taking the company to court. An arbitration demand from 96 users argues that rules requiring banks to reimburse debit card users for unauthorized transfers also should apply to Coinbase.

Algorithms are helping set the rent. A ProPublica report detailed how proptech firm RealPage’s YieldStar software helps landlords set prices for apartments across the U.S. — with critics concerned that the company’s algorithm is hurting competition.

Goldman Sachs’ overhaul plan will place its consumer unit in a new division. The Marcus consumer banking arm will be part of an asset- and wealth-management unit. The investment bank recently announced an expansion of its partnership with Apple to offer savings accounts.

Crypto broker NYDIG laid off a third of its staff. The job cuts total about 110; employees were told the firm wants to cut costs and narrow its focus.

Equifax fired some employees for working two jobs. The credit-reporting giant fired at least two dozen employees for working undisclosed jobs, Business Insider reported, and used the extensive work-history records it holds to catch them.

Companies could soon get clarity on how to report crypto assets. The Financial Accounting Standards Board could vote on an official rule for how companies count their crypto holdings by the end of the year.

Overheard

Wait — what? According to Klarna CEO Sebastian Siemiatkoski on Twitter Friday, Klarna is “NOT BNPL.” The tweet was meant to assert Siemiatkoski’s desired framing of Klarna as a “payments network” akin to Visa and Mastercard. But if he wants to redefine Klarna as not a payments company, maybe he should start with the company’s own Twitter account? As of writing, the company’s Twitter bio describes Klarna as a way “you can buy now and pay later to get what you love today.”

Watch out, it’s Mr. Steal Your — publication name? Ethereum co-founder Vitalik Buterin suggested that some crypto project should name itself “THE Protocol” and give its publicists a fun (read: incredibly difficult and frustrating) job. Who’s going to tell him that we snagged the domain name already?

Remember when FTX CEO Sam Bankman-Fried said he’d give $1 billion to political campaigns by 2024? The Democrat told POLITICO Morning Money Friday that he regrets that “dumb quote.” “At some point, when you’ve given your message to voters, there’s just not a lot more you can do … You can spend more time on it, and more messaging, more money, more anything else, [but] you’re not accomplishing anything more.”

And on a serious note, FINRA president and CEO Robert Cook offered some insight into how DeFi is thinking about crypto regulation. Apparently a growing number of digital asset firms are working with the self-regulatory agency to register as entities that can buy and sell securities. “We have a couple dozen vendors now whose business model is entirely digital asset securities,” he told the audience at the D.C. Financial Markets Quality Conference last week. “We have at least that many — actually more than that — in the pipeline.”

At the same conference, SEC chair Gary Gensler also dropped a bomb, endorsing the idea of the CFTC having more authority over “non-security tokens.” “I think the CFTC could well have greater authorities. They currently do not have direct regulatory authorities over the underlying non-security tokens,” he said. However, he also said those tokens are so few in number that they can be counted “on the fingers of a hand or two.”

Coming up

Bank of America announces earnings Monday. The EPS estimate from Zacks Investment Research is $0.79, where it was $0.85 for the same quarter last year.

Charles Schwab also announces earnings Monday. The EPS estimate from Zacks Investment Research is $1.05, where it was $0.84 for the same quarter last year.

And BNY Mellon announces earnings Monday too. The EPS estimate from Zacks Investment Research is $1.10, where it was $1.04 for the same quarter last year.

The digital Sopra Banking Summit is happening Monday through Friday, online and in-person. The “festival of fintech” event is free and will host over 50 hours of live programming on how to build sustainable businesses.

Fintech Nexus’ conference, Merge, is this Monday and Tuesday in London. The event focuses on the impact of Web3 on traditional finance and features speakers from Consensys, Kraken, and Plaid.

Truist announces earnings on Tuesday. The EPS estimate from Zacks Investment Research is $1.26, where it was $1.42 for the same quarter last year.

Equifax announces earnings on Wednesday. The EPS estimate from Zacks Investment Research is $1.64, where it was $1.85 for the same quarter last year.

Blackstone announces earnings Thursday. The EPS estimate from Zacks Investment Research is $0.97, where it was $1.28 for the same quarter last year.

TechCrunch Disrupt is this Tuesday through Thursday in San Francisco. The event features buzzworthy talks from leaders in VC and startups.

American Express announces earnings Friday. The EPS estimate from Zacks Investment Research is $2.38, where it was $2.27 for the same quarter last year.

Goldman Sachs also announces earnings Friday. The EPS estimate from Zacks Investment Research is $7.47, where it was $14.93 for the same quarter last year.

Don’t miss Protocol’s event, “It’s not privacy vs. security anymore,” next Thursday, Oct. 27. The event will be broadcast live from KubeCon + CloudNativeCon North America 2022, and features Protocol’s Kyle Alspach interviewing GitHub’s Jacob DePriest and Rocket Companies’ Chris Burrows.

A MESSAGE FROM AT-BAY

With the amount of our economy now dependent on technology, the lack of government regulation is resulting in major risk to companies, and in the end, our own citizens. In the absence of government action, insurance steps in.

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Thanks for reading — see you tomorrow!

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