The CFPB is currently proposing a rule to require open banking with comments due December 29. Open banking is a practice allowing consumers to access their financial data from credit unions (financial institutions) and securely share that financial data between financial institutions and third-party service providers, such as FinTech apps. Currently, financial data is primarily controlled by big banks.
With open banking, consumers can manage their financial information and access and share it with their authorized consent through an application platform interface (API) developed by the institution to securely share the consumer's financial data with another party. The shareable data includes account type, name on account, date of account opening, transactions from account, account balance, product use data and payment details.
There are many cons for credit unions but the number one will be the expense added on to CORE to make (store and securely share) the members data shareable). Now that we have the basics of open banking out of the way, the question I pose with this blog is: Will all consumers benefit from open banking given the significant expense and responsibilities required of credit unions?
Our financial services industry and related vendors (mortgages, etc.) still operate on a credit score-based system of lending or product offerings. Credit unions have always served advancing and emerging communities of members who traditionally have not received equal financial opportunities from traditional financial institutions due to their economic circumstances and credit scores.
Will open banking change their circumstances if they do not qualify with an economic background and credit score suitable to for-profit entities? My guess is absolutely not and that despite the added other cons for credit unions such as lack of standardization and regulation, that only the well advanced financially will truly benefit from shopping for better rates from third-party vendors and FinTech's.
For smaller credit unions, this added core expense (given the economic times, interchange threat, and other regulatory obligations) amounts to a near extinction level event for their online banking (if not overall) operations.
Please consider contacting the CFPB to comment in opposition to this unjustified, ill thought out and inappropriate proposed rule for the interests of most members.