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FDATA’s Ghela Boskovich on Mandatory vs Voluntary Approaches

Financial services is a hyper conservative industry, and a protectionist stance is common. No institution naturally wants to share customer data with a competitor, and data custodianship is often conflated to mean institutional data ownership.

The benefit of a mandatory approach is that it often enshrines a consumer data right, which clarifies the ownership vs. custodianship conundrum. Mandatory approaches also often consider consumer outcomes first and foremost, something that is not first priority when industry is left to voluntarily design delivery and outcome.

There is ample evidence to show that without a regulatory push, certain markets are reluctant to move towards a standard open data sharing scheme of their own volition. Even in voluntary markets, the regulatory pressure to deliver open banking is so strong it might as well be considered mandatory (it’s a case of “do it, or else we’ll do it for you”).

The advantage to a voluntary approach, though, is that incumbents recognise the incentive to participate, and often see economic and commercial value from participation; the ROI is there in some form, and the business case for broad data sharing is compelling enough to participate because the majority of FIs have a similar POV.

However, experience seems to prove that a mandatory approach is needed to accelerate open data sharing at scale.

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FDATA’s Steve Boms on Mandatory vs Voluntary Approaches

In the evolving world of open banking and finance, the United States and Canada initially adopted similar voluntary approaches. FDATA North America has closely monitored this landscape, recognizing the importance of these nations’ transitions from voluntary to more mandatory frameworks.

In the United States, the shift towards a mandatory approach in open banking has been a significant development. Initially following a voluntary regime, the U.S. saw a notable change with the Consumer Financial Protection Bureau’s (CFPB) introduction of a proposed rule under Section 1033 of the Dodd-Frank Act. This proposed rule, aimed at enhancing consumer control over their financial data, signals a move towards a mandatory regulatory framework. This transition marks a major alignment with global financial technology trends and opens new opportunities for consumer benefits and innovation. Departing from the market-driven solutions that once dominated, this shift suggests a more competitive and innovative financial market, breaking away from the traditional dominance of large financial institutions.

Canada, following the U.S.’s lead, has also begun to shift away from its voluntary stance. This movement was highlighted by the Canadian Government’s Fall Economic Statement, which included a comprehensive framework for consumer-driven finance and open finance directives. This development indicates Canada’s progression towards a more structured, mandatory approach. This transition aligns Canada with other G-7 nations and reflects a global shift towards consumer-centric financial services, signifying a substantial change in the country’s approach to financial services regulation.

For FDATA North America, these developments in both the U.S. and Canada represent pivotal moments. The U.S.’s move towards a more defined regulatory framework under the CFPB is expected to lead to a more dynamic and competitive market, in line with global consumer data empowerment trends. In Canada, the enactment of consumer-driven finance will mark a significant step from a voluntary to a mandatory approach in open banking. As both countries refine their open finance strategies, the potential for transformative changes in consumer and business interactions with financial services is substantial. These shifts open exciting prospects for innovation, competition, and financial inclusion, reshaping the financial landscape in both countries.

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FDATA’s Ludmila Volochen on Mandatory vs Voluntary Approaches

Acknowledging the global context in which Open Finance operates, it’s important to understand the distinct roles of mandatory and voluntary approaches, particularly when contrasting Latin America’s experience with other regions. While the voluntary approach is more prevalent in other parts of the world, Latin America has been more inclined towards a mandatory framework, as highlighted in the report by FDATA LATAM in collaboration with the Inter-American Development Bank (IDB).

The mandatory approach in Latin America, as the report suggests, brings numerous advantages. It sets a clear regulatory framework, ensuring standardized practices across the financial sector. This is essential in a region with diverse economic and financial landscapes, as it provides a consistent and secure environment for data sharing. Mandatory regulations drive competition, lower barriers to entry for new players, and foster innovation, which is crucial for a dynamic financial ecosystem.

In comparison, the voluntary approach, predominant in other regions, allows for flexibility and market-driven innovation. Financial institutions and fintechs develop data-sharing practices organically, which can lead to highly tailored solutions. However, this approach may result in uneven adoption and standards, which can be challenging for ensuring universal access and consumer protection.

In Latin America, the emphasis on a mandatory framework reflects a proactive stance towards creating an inclusive and competitive financial environment. This approach aligns well with the region’s goals of accelerating financial inclusion and leveraging technology and data to empower consumers and businesses. It ensures that all stakeholders, regardless of size, have equal opportunities to participate in the evolving financial landscape.

Thus, while recognizing the value of voluntary systems globally, the mandatory approach in Latin America, as advocated by FDATA LATAM and the IDB, is particularly well-suited to the region’s objectives. It strikes a balance between regulation and innovation, paving the way for a more equitable and progressive financial sector.

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FDATA North America Submits Comments to Canada’s Department of Finance Pre-Budget Consultations 2024

Contact: Laine Williams, (202) 897-4757, [email protected] 

February 9, 2024 Washington, DC – The Financial Data and Technology Association of North America (FDATA) submitted comments to Canada’s Department of Finance as part of its pre-budget consultations in advance of Budget 2024. Our submission emphasized the necessity for Canada to build upon the inclusion of consumer-driven banking (CDB) in the 2023 Fall Economic Statement, moving towards a fully realized Canadian open finance framework. The letter underscored the significance of CDB as a foundational step towards financial empowerment for consumers and small and medium-sized enterprises (SMEs), fostering a more innovative and competitive financial services marketplace in Canada.

Our letter urged the Canadian government to:

  • Legislate a CDB Framework: Introduce specific language in Budget 2024 to legislate the CDB framework, empowering consumers and small- and medium-sized enterprises (SMEs) with secure access to their financial data, thus ensuring Canada remains competitive in the global financial ecosystem.
  • Establish a Robust Governance Entity: Allocate funding for the creation of a new, neutral, and transparent governance entity to oversee the CDB framework. This body should be capable of making quick, binding decisions and be accountable for its actions, ensuring the framework’s success and longevity, and should be tasked with framework management, API auditing, accreditor oversight, technical standards oversight, liability apportionment, and dispute resolution.
  • Outline a Vision for Open Finance: Beyond CDB, Budget 2024 should detail the government’s approach to open finance, the next evolution in financial services, which promises to unlock unprecedented market innovation and competition for the benefit of Canadian consumers and SMEs.

In the submission, we also asserted that any CDB governance entity in Canada must be neutral (i.e. not controlled by any particular stakeholder(s) with commercial interests in the ecosystem), transparent (i.e. it invites and considers stakeholder input and subjects its decisions to an open, publicly visible process), nimble (i.e. capable of making binding decisions relatively quickly and without undue bureaucracy), and accountable (i.e. explain its decisions and actions and be subject to judicial oversight and administrative law processes) with all stakeholders in the system agreeing to comply with the decisions and determinations made by the open banking governance entity as a condition of being active in the market.

A full copy of the submission is available here.

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FDATA North America February Newsletter

FDATA North America Monthly Newsletter for February 2024

Welcome to FDATA North America’s monthly newsletter! These regular dispatches will share developments from our organization and our 30+ member companies, all of which are promoting financial access and inclusion with open finance use cases. We also include a list of upcoming industry events, and coverage of any market developments that impact fintech innovators. Know someone who’d like to receive these monthly updates? Send them here to sign up.

Member News & Activity

API Metrics published a blog post sharing the top three API trends for 2024, focus on API Discovery, API Validation, and API Conformance. These trends emphasize the importance of discovering and monitoring all APIs for security and efficiency, ensuring APIs meet specific requirements and performance standards, and verifying that APIs conform to their intended use and governance rules.

Basis Theory published a blog post discussing chargebacks, explaining them as bank-initiated reversals of charges in response to consumer complaints, such as fraud or disputes over refunds. The post emphasizes the importance of clear communication, effective customer service, and robust fraud protection measures in payment systems to minimize chargebacks.

Betterment posted a press release announcing the launch of “Betterment at Work,” allowing small business employers to match their employees’ student loan payments with 401(k) contributions. This industry-first solution, aligned with the Secure Act 2.0 legislation, aims to aid workers burdened by student debt in enhancing their retirement readiness by enabling them to save for retirement while paying off their loans.

Codat posted a blog detailing its Bank Feeds API, which now supports platforms like NetSuite, QuickBooks, Sage, Xero, and FreeAgent, simplifying the integration process for corporate card and cross-border payment providers.

Envestnet Yodlee’s Head of Governance, Risk & Compliance Lisa Novier, remarked on the remarkable acceleration of open banking at the Money2020 conference, highlighting an increase of over 140% in their open banking volume from 2022 to 2023. During the event, she also delved into their strategy for educating data providers and discussed the advantages of expanding the Consumer Financial Protection Bureau ruling for both financial institutions and consumers.

EQ Bank published a press release highlighting its “Second Chance” campaign, which challenges Canadians to expect more from their checking accounts, particularly in light of a new survey revealing low awareness about interest earnings and dissatisfaction with financial incentives from banks.

Experian posted a press release announcing its new integration with Dark Matter Technologies, enabling the majority of U.S. mortgage lenders to instantly access verified income and employment information through Experian Verify, integrated with Dark Matter’s Empower loan origination system and Exchange service network.

Financsystech was mentioned in an article on Prensa, discussing the trends of 2022 in Open Finance and Open Insurance, where CEO and Co-founder Danillo Branco, a pioneer in building an Open Source Open Finance as a Service Platform, contributed to the debate on digital transformation and service provision in these sectors.

Flinks published a blog exploring the benefits of Open Banking for commercial banking, highlighting how this innovation is transforming the Canadian financial landscape by offering more efficient, secure, and accessible services to businesses and reshaping operations in an increasingly digital world.

GoCardless was mentioned in “The State of Open Banking: Six Years After PSD2” article in the Fintech Times, where Tom Burton, the Director of External Affairs and Public Policy, discussed the evolution and challenges of open banking payments technology. He emphasized that for open banking to become a primary alternative to card payments, it needs to achieve ubiquity through comprehensive bank coverage, excellent user experience, and integration into digital wallets.

MX published a blog proclaiming 2024 as the year of financial data intelligence, predicting significant growth and success for financial institutions and fintechs that effectively harness and leverage vast amounts of transaction and customer data.

Portabl published a blog titled “Portabl x Mastercard: Start Path Open Banking 2024,” announcing their participation in the Mastercard Start Path Open Banking Program as the first reusable identity platform. This collaboration aims to leverage Portabl’s reusable KYC and verifiable credentials to enhance financial access and consumer choice, by integrating identity with payments within Mastercard’s global network.

Trustly held a webinar titled “Embedded Finance vs Open Banking: What’s the better build for your customers?”, where they explored the significant market potentials of open banking and embedded finance, projected to reach $164.8 billion and $6.5 trillion respectively in the coming years.

Events and Submission Deadlines

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Moneyhub’s Sam Seaton on Open Wishes for the New Year

I have two special requests for the New Year:

I would love to see more institutions, government sectors, and private entities embracing the principles of Open Data, making datasets publicly available in machine-readable format.

Equally important is helping people to become more aware of the value of their own data and how useful it is when used in an Open Data environment.

It is so important to remember the power of Open Data lies in its use, so the ultimate wish would be to see more innovative applications of Open Data in solving real-world problems and enhancing people’s lives.

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FDATA’s Ghela Boskovich on Open Wishes for the New Year

My wishes for 2024 hastening an open data sharing economy are centred around two things:

1) Enhancing trust in the system by ensuring permissioned data sharing and consent best practice principles are adopted by each and every government, industry, sector and scheme. Without a robust consent and authentication framework, trust in the system cannot exist. Consumers need to trust their data is safe and secure before even considering sharing it; without trust, adoption is doomed. Consent and permission is the key to unlocking data sharing.

2) Getting governments to accelerate opening up their own data sets, leading by example in those jurisdictions that have active data sharing legislation in play or being developed. If they want specific industry sectors to participate in those wider schemes, governments can easily incentivise that by cracking open government held data. It also increases outside investment in creating the necessary frameworks to enable safe, secure data sharing across sectors.

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FDATA’s Walter Pereira on Open Wishes for the New Year

In 2024, I believe that some countries in the region will still face technical challenges and issues related to the financing and maintenance of data-sharing infrastructures.

However, Brazil, with its advanced implementation and exploration of investment and insurance data, and the regulatory advancements in Chile, could position both countries as regional and global benchmarks.

The primary challenge for Brazil, in my opinion, may revolve around the monetization of the data collected by institutions, whether they are major banks or third-party providers (TPPs). As for Chile, the key challenge might be the implementation of a technical and governance model that enables the emergence of new use cases.

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FDATA’s Steve Boms on Open Wishes for the New Year

As we usher in the new year, members of FDATA North America are poised with great anticipation for the advancements in open banking and open finance, both regionally and globally. With significant strides made in the United States and Canada, there’s a collective optimism about shaping a more consumer-focused financial landscape.

In the United States, the attention is riveted on the Consumer Financial Protection Bureau’s proposed rule under Section 1033 of the Dodd-Frank Act. FDATA NA members view this as a pivotal shift towards a mandatory regulatory framework in open banking. The hope is that this change will catalyze a financial ecosystem that champions innovation, competitiveness, and inclusivity, breaking free from the traditional dominance of large institutions. The expectation is a financial marketplace that is not only dynamic but also more attuned to the needs and rights of consumers.

The recent developments in Canada, particularly the anticipated enactment of the Fall Economic Statement Implementation Act, 2023, also resonate positively with FDATA NA members. This move is seen as a foundational step towards a structured, mandatory open finance regime. Members anticipate that these measures will significantly advance Canada’s open banking framework, fostering an environment ripe for innovative financial solutions tailored to consumer needs.

Overall, FDATA NA members are hopeful that these regulatory evolutions in the U.S. and Canada will lead to a broader global transition towards secure, efficient, and consumer-driven open banking and finance systems. As we step into this new year, there’s an air of expectancy for transformative changes that could redefine the interaction between consumers and financial services on a global scale.