CashNews.co
The Consumer Financial Protection Bureau and industry participants are pushing for multiple organizations to set open banking standards, but so far only the nonprofit Financial Data Exchange has applied.
A single standard-setting body would create an unfair monopoly, said regulators and attorneys who follow the industry.
The Reston, Virginia-based organization acknowledged in its application that some aspects of the standard-setting process will only include FDX members.
Certain groups can become FDX members at little to no cost, and non-members can apply for a license to share consumer data, FDX spokesman Don Cardinal said by email.
The CFPB issued a final rule on open banking Tuesday, and is accepting applications for standard-setting bodies that will determine the benchmarks financial institutions must meet before letting consumers share granular financial details. The agency began accepting applications from aspiring standard-setting bodies last month.
Open banking would give consumers more control over sharing their financial data, including spending and deposit history, with financial institutions, such as lenders, credit card issuers and payment apps.
FDX sets standards for data-sharing between financial institutions and consumers in the U.S., and applied to be an open banking standard setting body Sept. 24. It remained the only applicant as of Thursday.
CFPB Director Rohit Chopra, addressing the Federal Reserve Bank of Philadelphia on Tuesday, said the agency wants multiple applicants.
“Standard-setters must reflect the full range of relevant interests,” he told the Philadelphia Fed’s annual fintech conference. That includes “incumbents and challengers big and small, consumers and firms, and ideally would also represent the perspectives of firms that don’t even exist yet.”
In remarks to the Financial Data Exchange Global Summit in March, Chopra said standard-setting organizations will play a crucial role in open banking, adding that the CFPB needs to be vigilant so those standard setters don’t weaponize the process to the advantage of large financial institutions.
FDX has a governing board composed of executives from financial providers such as JPMorgan Chase, Visa, investment firm Fidelity and fintech Stripe.
FDX was expected to be the first group to apply, said Kim Phan, a partner at the law firm Troutman Pepper. “They just had to adapt what they were already doing,” Phan said.
Still, regulators want others to throw their hats in the ring, she said. The CFPB doesn’t “want to set up monopolies,” Phan said. “They’re not trying to crown FDX as a kingmaker. They’re hoping to have at least some competition.”
FDX is a paid membership organization, and if it is the only standard-setting body, “that might disadvantage non-members,” she said.
Under FDX processes, non-members can apply for a license to allow consumers to share data from their bank accounts, but any company or organization that wants to participate in other parts of the standard-setting process — such as joining meetings or suggesting changes to the standards — has to be an FDX member, the nonprofit said in its application.
“This ensures we can fund the organization’s standards setting activities,” the application reads.
That language suggests “there is probably a valid concern,” Phan said.
FDX has a tiered membership structure, with fees based on the member’s size, and consumer groups can participate at no cost, Cardinal said.
FDX’s approach helps it “create useful standards — in an open and balanced way — that benefit everyone in the market, regardless of how many standards bodies the CFPB ends up recognizing,” he said.
In a letter, an attorney from the National Retail Federation urged the CFPB to limit FDX’s term as a standard-setting body to a single year, citing the organization’s preferential treatment of its members.
“This approach would also allow other applications to be submitted,” Stephanie A. Martz, chief administrative officer and general counsel for the NRF, wrote to the agency.
However, having a single entity setting the standards could be an advantage, said David Soberman, a professor of marketing at the University of Toronto who follows the payments industry.
A single set of standards would be more broadly understood, he said.
“This will assist in the education of consumers regarding the benefits and risks of sharing your banking information,” Soberman said.