Demystifying Open Banking

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Open banking development has reemerged as a hot topic now that the Consumer Financial Protection Bureau’s rule implementing Section 1033 of the Dodd-Frank Act may soon come into effect. The rule will likely reshape the way consumers interact with their personal financial data.  

Velera Senior Innovation Strategist Lou Grilli recently appeared on CUbroadcast, hosted by Mike Lawson, to discuss open banking opportunities for credit unions.

Grilli provided two lenses to define open banking:  

1. A financial services model that empowers a member to share his or her banking data with a fintech app through a programming interface (API). Grilli said, “A good example is your favorite fintech app that is able to aggregate your total financial picture (e.g., shared draft balance, credit card balance, 401K, etc.).”  

2. Credit unions provide API access with fintechs and a user interface offering permission to acquire specific data.   

Lawson pointed out that consumers have been groomed to not share their data and asked for some benefits and drawbacks to allowing a third party to have access. Grilli explained that data sharing has been happening for a long time, just not through APIs and not with some “manner of control.”

“A ‘pro’ of open banking is that it’s better than screen scraping,” said Grilli. That’s because there’s an entity acting as a liaison (the credit union in our case), vetting the fintechs and ensuring that the entities are not reselling without your knowledge.  

“The ‘con’ is if that entity you’re sharing data with is not legit, you don’t know what they’re doing.”  

Grilli said the personal financial data rights act, Section 1033 of Dodd-Frank, provides the CFPB with authority to mandate open banking.  

“This could potentially become a rule this year—a mandate for every institution in the U.S. to implement open banking/API access,” said Grilli.  

Grilli noted that the largest financial institutions will be the first required to implement, a process that will be stair-stepped based on asset size.