Open Banking: Cut the malarkey!

Earlier this month the Biden Administration published a lengthy executive order designed to promote competition in banking. Below are two snippets from the document that turned fintech heads (headers are ours):

Checks on bank M&A

“Over the past four decades, the United States has lost 70% of the banks it once had, with around 10,000 bank closures. Communities of color are disproportionately affected, with 25% of all rural closures in majority-minority census tracts. Many of these closures are the product of mergers and acquisitions. Though subject to federal review, federal agencies have not formally denied a bank merger application in more than 15 years.

Excessive consolidation raises costs for consumers, restricts credit for small businesses, and harms low-income communities. Branch closures can reduce the amount of small business lending by about 10% and leads to higher interest rates.”

Open banking

“…Even where a customer has multiple options, it is hard to switch banks partly because customers cannot easily take their financial transaction history data to a new bank. That increases the cost of the new bank extending you credit.”

What’s the big deal?

Section 1033 – which calls for the Consumer Financial Protection Bureau (CFPB) to issue regulations detailing financial data access and sharing – has been on hold for as long as the CFPB (also created by Dodd-Frank) has existed.

Biden’s executive order may finally give section 1033 teeth.

The order is being viewed as a watershed moment for fintech lenders in the US and has been celebrated by the CLA’s sister organizations south of the border – FDATA, FTA, and AFC.

Give me the Canadian POV

Bank competition: The Canadian banking ecosystem is far more consolidated than the US. Over 80% of deposits are held at six banks and close to ¾ of all mortgages come from the same institutions. Similar legislation limiting Canadian bank M&A is broadly not applicable here, however juiced up balance sheets have spurred Canadian banks to acquire retail and wealth management brands in other markets.

Open banking: The US has historically been seens as the best example of a market driven approach to open banking. Without a codified regulatory framework, open banking is provided by vendors like Flinks, Inverite, Plaid, MX, etc. However there is no mandate for banks to actually participate beyond a commercial prerogative.

In Canada, we have begun to go down the road of a government led framework. But after two rounds of consultations over five years, little progress has been made. It may be time for Trudeau to buy a pair of aviators.