A Rocky Regulatory Path
The journey toward a fully implemented Open Banking framework in the US has faced major hurdles. A rule was enacted in 2024, which brought a period of market certainty.
This rule fostered collaboration between banks and fintechs and spurred innovation. However, in late 2024, that rule was rescinded. This action created considerable uncertainty across the industry.
Currently, the financial sector awaits a final rule-making. A lawsuit further complicates the situation, adding to the instability. Key questions remain unresolved.
These include whether financial institutions can charge fees for data access. Another open question is which types of accounts should be considered “covered entities” under the rule. These ambiguities fuel confusion and stress for all parties involved.
Data Sharing Agreements and Industry Friction
Data access agreements have been in place since the 2010s, following the enactment of the Dodd-Frank Act. These agreements anticipated the eventual arrival of an open banking regime.
However, the rescission of the 2024 rule has caused these agreements to evolve. They now reflect a more uncertain regulatory environment.
This uncertainty creates several points of friction among:
- Banks
- Fintechs
- Aggregators
For consumers, it raises concerns about data security and who has access to their information. Fintech companies face potential risks to their relationships with financial institutions.
Banks, in turn, might miss opportunities to reach new markets or customer segments. Despite these disagreements, there is a shared understanding across the industry. Most stakeholders agree that consumers own their data and should have the right to share it as they choose.
The Role of Data Privacy and Security
Data privacy is a central concern within the Open Banking discussion. In the US, data privacy is currently governed by the Gramm-Leach-Bliley Act and other existing laws.
However, there is ongoing contemplation in Congress for legislation to create a national standard for data privacy. This would ensure consumer data is protected more uniformly.
Section 1033 aims to standardize data access and usage. It seeks to ensure that consumer data is used only for its intended purpose.
Consumers should also have specific rights. These include the ability to revoke access to their data. They should also be able to delete their information if they wish.
And, the right to switch accounts easily is a key consumer protection. These measures are vital for building trust in the Open Banking ecosystem.
Open Banking’s Future: AI and Global Context
The future of Open Banking is closely tied to advancements in artificial intelligence. Consumers are increasingly turning to large language models (LLMs) like ChatGPT, Claude, or Gemini for financial advice.
These AI tools can answer questions about loans or savings goals. To provide personalized and accurate guidance, these LLMs will need to use open banking data. This means integrating with data aggregators to access a consumer’s financial accounts.
From a regulatory perspective, the financial industry is generally prepared for AI’s role. Humans have long relied on agents like stockbrokers and tax preparers for financial expertise. AI tools will likely carry similar fiduciary responsibilities.
Currently, the focus is on “read access,” where AI provides suggestions based on financial data. The ability for AI to have “write access”—making transactions or changing account numbers—is not yet a reality in the US. However, other countries, such as Canada, are exploring this direction.
The US can learn from international examples. Canada is committed to its version of open banking, called consumer-directed finance. The UK recently released its framework for PSD3, which modernizes payments and strengthens open banking.
Australia also has a strong open banking environment. The US financial system is different, with a fragmented regulatory structure. However, this also presents an opportunity for the US to establish a leadership role in financial data access and consumer data ownership.
Risks of Incomplete Implementation
Failing to implement Open Banking effectively in the US carries major risks. The entire system relies on consumer trust.
If consumers do not trust how fintechs or banks handle their data, they will not participate. A lack of participation would undermine the benefits of increased competition and innovation.
Another major risk is the exclusion of unbanked consumers. If the authentication methods for Open Banking require traditional credentials, those without bank accounts will be left out.
Developing inclusive authentication methods is essential. This would ensure that more people, including underserved consumers, can reap the benefits of a strong Open Banking ecosystem.
