Overseas fintech and payments firms have been eagerly watching the development of Open Banking in the US for some time, but recent political developments have made this observation a more tense affair.
Donald Trump, the President elect, is a vocal man. In the realms of finance, his enthusiasm for cryptocurrency is his most notable opinion, but very little is known of his views on Open Banking which, as far as Payment Expert is aware, he has never commented on.
Open Banking providers in countries like the UK, which has built up a leadership position in the space, will benefit from closely monitoring Trump’s financial policies and development of the sector under his second presidency.
The impact of UK Open Banking firms making it big in the US could be felt even further afield, perhaps even on a global scale, says Helen Child, CEO of Open Banking Excellence (OBE), a global community of Open Banking and Open Finance companies which recently published its ‘TransAtlantic Index’ report into US Open Banking development.
A transatlantic formula to global growth
“The combination of US super-sized scale plus UK expertise equals global acceleration and global expansion of open banking and open finance,” Child told Payment Expert in the aftermath of Trump’s election win.
“We have the expertise to support the unlocking of unparalleled global market acceleration. We’re at a pivotal inflection point where US scale combined with UK expertise creates a powerful formula: ‘US scale + UK expertise = global acceleration.”
Though Open Banking has only come to the forefront of discussions around fintech and payments in the past 10 years or so, commentators in the US would argue that it has been present in the country for around 20 years via screen scraping.
This is a form of data sharing in which bots copy information from websites like text, images or charts. Though the US government and industry want to move on from this to a more advanced and consumer friendly form of data sharing, it has built up a foundation for Open Banking growth.
As stateside Open Banking catches up on its European counterparts, the opportunity for overseas firms will be tremendous, Child says. The UK finance sector alone is home to a number of prominent Open Banking specialists – Bud Financial, GoCardless, Plaid, Yapily, Salt Edge, TrueLayer, Tink and Token.io, to name a few. For firms like this the US presents a huge goldmine.
“The US market has a breadth and depth of use cases that use screen scraping,” says Child. “What you now have is the world’s largest GDP going into open banking using a secure consent model.
“Whatever happens in the US market, the largest market on the planet, will have an impact on every other country, and there are currently 80 countries in the world which are at some stage implementing Open Banking. The impact will be very significant.
“Our Transatlantic Index report delivered in partnership with Oxford University points to an inflection point with a noticeable market split with the scope of regulation.”
Under the Biden-Harris administration, the implementation of 2010 Dodd–Frank Act protection provisions has continued at pace. Most recently, this saw the Consumer Finance Protection Bureau (CFPB) introduce new rules around data sharing under the Act’s Section 1033, strengthening the foundations for Open Banking’s growth.
As the final rule on Open Banking, the Personal Finance Data Rights Rule is the ‘starting gun’ for Open Banking, Childs tells Payment Expert. It is hard to disagree with this, with a regulatory timetable now in place that stakeholders must comply with.
Notably though, the US banking sector is not entirely onboard with the CPFB’s final rule. Shortly after the rule was announced, the Bank Policy Institute and Kentucky Bankers challenged its implementation in court, citing consumer protection concerns.
“There will always be pushback, you’re never going to get everybody to agree, that’s why regulatory guardrails are important as it allows a market to develop,” Childs adds, but the CEO remains confident that the final rule will prove significant in driving Open Banking adoption in the US.
In comparison to other countries, the CFPB’s rules are ‘a lot lighter’, she says, adding that she expects the situation to now ‘cascade’ towards the formula discussed above – that UK expertise added with US scaling abilities will lead to global acceleration of Open Banking.
Child continues: “1033 is hugely significant, the impact will cascade worldwide – US scale plus UK expertise leads to global expansion and acceleration of Open Banking. This is why the US market is now poised for expansion. That will cascade globally, US scale plus UK expertise equals global acceleration.”
Changing times
It is unclear how the election of Donald Trump by a wide margin earlier this month will change things. As stated above, the Republican President, who will begin his second tenure as president in January 2025, hasn’t made his opinion on Open Banking clear.
What is clear, however, based on his first term in office between 2016-2020 and numerous public statements, is that he is not a huge fan of regulation. He has also expressed dislike for the current leadership of the Securities and Exchange Commission (SEC), primarily relating to one of his favourite financial topics, cryptocurrency.
Also, Trump’s last presidency was defined at times by a degree of unpredictability. Guessing what position he could have on Open Banking and the CFPB’s data rules is exactly that – a guess, and it would be speculation to assume that his presidency would change the course of the 1033 adoption just because progress was made under Biden-Harris.
“The eyes of the world are on the US, there is some political uncertainty, and that could hamper momentum,” Childs acknowledges. OBE’s CEO notes that stakeholders should also watch the development of the banks’ challenge against 1033, and how this progresses under Trump.
“US Open Banking is poised for major acceleration, the uncertainty is there because there has been a challenge to that Final Rule and of course there will be a new unpredictable administration. Let’s see how that plays out when Trump’s in power. The major thing is that Open Banking is now in the US.”
Though we don’t exactly have a lot of information about what Trump may think about Open Banking, we have some idea of what the market thinks about it. OBE has contributed to this significantly, having recently published its TransAtlantic Index underpinned by Oxford University research and insights from industry experts.
This research suggests that a market driven environment for Open Banking is a more popular option among stakeholders, as opposed to a regulatory driven one. Though 1033 has already ushered regulatory guardrails, the industry wants to see the market take control.
Child explains: “Interestingly the data from our first Index, the Global Open Finance Index shows a massive appetite for a mandated environment. That is softening – possibly as the US has a market driven philosophy which is affecting the data.
“The data says that people are more comfortable with a market driven environment. The pendulum has shifted, very interestingly, from right at the beginning when people wanted very narrow regulatory guardrails. Now, people are saying we still need regulatory guardrails but we need to be more market driven.”
“The Bank Policy Institute and the Kentucky Bankers Association filed a lawsuit challenging the Final Rule, within hours of it being published. It will be interesting to see what happens once Donald Trump comes in officially in January, whether he will support that challenge or not.”
The right product for the right market
There is one factor that is out of the control of regulators, banks, fintechs and the presidency: consumer opinions. Across various European countries, regulators and the industry have been trying to encourage greater Open Banking adoption.
Some observers, such as at the Payment Expert Summit in Lisbon earlier this year for example, have expressed worry that consumers may be reluctant to fully embrace Open Banking due to its data sharing foundation. The widely touted solution to this is the need for extensive consumer education.
Childs shares a different viewpoint, arguing that Open Banking in use can be proven by its virtues as a product and by its regulation, not by consumer education. OBE’s research found that 64% of respondents felt that consumer protection in Open Banking backed by the CFPB and 1033 has had a good impact.
“If there is the right compelling use case, people will adopt it. It’s all about the use case. Open Banking is an enabler,” she says.
“There doesn’t need to be a huge market education on what Open banking is, it’s purely payments and data. It’s plumbing – if you can get the right use case in the market that will drive adoption.”
The US is of course not the only market where Open Banking has a lot of potential. Childs points to Mexico, Brazil, Chile, the Asia-Pacific region and the Middle East as all presenting significant opportunities.
The Middle East in particular has seen a surge in financial innovation in recent years, and UK firms have been playing a big part in this – Childs notes that Saudi Arabia’s Open Banking framework has been based on British standards, whilst in the UAE, ‘British companies are absolutely the heart of that implementation’.
For now though, the US should be front-and-centre for stakeholders, who should be monitoring the implementation of 1033 and the banks’ challenge against it closely.
The market will continue to grow and catch up with its counterparts ‘without a shadow of a doubt’, Child says. This will undoubtedly lead to ‘huge opportunities’ for UK businesses as well as for US ones hoping to learn from the six-years of experience British firms have amassed.
“I think that we are leaders of expertise. In any scale driven global market the UK will never lead on volume of transactions,” Child summarises.
“Right now, I think it’s about us all having global growth, so with the US coming in – going back to US super size scale, plus UK expertise, that depth of expertise will lead to global expansion, there really is enough market share for everybody to go around. The UK definitely leads on expertise and innovation.”
Perhaps the biggest question in all of this is, can Donald Trump be persuaded to get on board with the Open Banking surge?
Whilst he is an unpredictable man, he is also keen on a good deal, and as noted above has an appetite for cryptocurrency – this may prove the inroad Open Banking lobbyists need when Trump makes his return to the Oval Office next year.
