I stand by this story: The fintech industry made Rohit Chopra a folk hero, and co-opted his crusade against the banking industry to its commercial benefit. How? It made open banking a moral cause that was impossible to oppose.
Fintechs won the PR war before the regulation ever mattered. Financial freedom's righteous cause brilliantly accomplished their commercial aims. Who but the bad guy would say that consumers don't have a right to their data, and do what they please with it? Especially banks, which have a mixed reputation on that count.
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How it played out
Dodd-Frank, passed in 2010, gave fintechs legal cover to scrape banking data. Banks and fintechs played cat and mouse while the cogs of government turned for a decade.
The banking industry lost its mind over the proposed open banking rule, which promised a regulatory framework for fintechs' access to consumers' banking data.
The fintech industry sold "financial freedom for all" and got what it wanted from the Biden CFPB while the banking industry made a "woe is me" argument about security and cost.
And last year, the Trump CFPB almost killed the Biden open banking rule, then issued for public comment a new draft that proposed to allow banks to charge data access fees, narrow the third parties who can have access, tighten security standards, and clarify liability.
The death of the policy solution
The US open banking "policy solution" is a toothless stack of paper. Fintechs kept the moral win. Banks gained back some ground. Open banking had already changed the banking industry forever.
The last substantive thing anybody said about open banking was that nobody noticed when the first implementation deadline passed the other day. Could open banking rear its head as a public policy issue and perceived threat? Perhaps under a Newsom administration.
The banking industry’s real problem
Banks that got whipped up over open banking did not always understand it, exacerbated by vendors whose imprecise verbiage didn't help:
Open banking, above, first addresses consumers' moral and legal ownership of their banking data and their right to grant apps access to it. It dovetails with apps' access to banking data, but they are not the same thing.
Any technical method of connecting a fintech or other app to a consumer's bank can be mislabeled as open banking. There are two mechanisms for accessing banking data (screen scraping and bidirectional APIs). Nothing about either is "open."
Some vendors still talk about third-party extensions as "open banking." The "openness" is unlocking a vendor's walled garden to nonproprietary connections, and uses APIs to connect applications. This is better thought of as an open developer kit (which is sometimes talked about as third-party integrations in general, which is not real).
The common thread
The banking industry couldn't agree on what it was arguing about, while the fintech industry owned a moral case that spoke to everyone. Banks fought over definitions and cost. Fintechs fought for a principle. That's not a fight banks were ever going to win.
Thanks for reading today’s issue of Fintech Notebook. Deep thinking and color commentary on the present and future of fintech by Tyler Brown.
Reach out to me by replying to this email, connecting on LinkedIn, or visiting my website @ tylerbrown.co.
AI assisted image generation, and editing for this article.