CFPB's Personal Financial Data Rights Rule
On October 19th, the Consumer Financial Protection Bureau (CFPB) unveiled the long-awaited "Personal Financial Data Rights Rule" (Proposed Rule). This rule aims to regulate access to personal financial information from financial institutions through open banking, benefiting both consumers and data aggregators. The CFPB's objectives with this Proposed Rule include driving competition in the banking and consumer finance sector and safeguarding consumer data by establishing a secure and competitive "data access framework." The Proposed Rule operates under Section 1033 of the 2010 Dodd-Frank Consumer Financial Protection Act, a provision that CFPB Director Rohit Chopra described as "dormant authority" in his accompanying remarks.
About Open Banking
As you may know, Open banking refers to a financial services set of Security and API standards that enable third-party developers to build applications and services around financial institutions. The goal of open banking is to facilitate greater financial transparency, competition, and innovation by allowing different financial institutions and fintech companies to share and access financial data in a secure and standardized way.
Open Banking gives users greater control over their financial data. Users have the ability to grant consent for their financial information to be accessed by and shared with third-party providers through standardized APIs. This concept is strongly related to Personal Financial Data Rights.
What is Open Banking?
As we mentioned before the Open banking model removes from banks the property of data and other information. In this open model, the customer is now the real owner of their data and is empowered to decide what the best service is and choose, within the financial services ecosystem.
In practice, this is a decentralized model that aims to bring more innovation, as more businesses are pushed to improve the quality of their services and develop new ways to deliver a better overall customer experience.
Instead of using different bank apps to control finances or make payments, customers can use their digital wallets as well as other apps to manage the finances of the different bank accounts, everything in one single app, fully integrated, consolidating financial reports and giving more visibility of their day-to-day banking.
The three main pillars of Open Banking:
Data consumption is paramount to building Open Banking strategies. Only complying with the regulation might not create the competitive advantage banks are looking for, but the data consumption, data intelligence, and a strong ecosystem can generate the insights and new revenue streams desired. The primary drivers for your API prioritization strategy are the value proposition and ensuring alignment with your company's strategic goals. The indicators used should accurately mirror the company's strategic objectives.
As mentioned above, the "Open" models are not about competition, but about creating ecosystems and diversification for the overall improvement of the customer experience. Therefore, companies must develop new business models for partnerships, not only with Fintechs but also with other financial institutions. Bringing together data from these partners and offering highly personalized products and services should be a central focus of Open Banking strategies.
Security and reliability are paramount. The consumption of APIs must comply with a series of security requirements and access management, ensuring a clear understanding of who is consuming the data and where it is flowing is mandatory for companies exposing data. In the world of APIs, security mechanisms must be tailored for API usage, with API design always regarded as a critical security feature.
API Platforms for Open Banking
Open Banking is not only about creating opportunities, it is also a standard that forces financial institutions to change the way they are used to thinking. In this context, it is up to the institutions to create and implement effective mechanisms to comply with the regulation and create new business opportunities using open APIs.
While manual integration flows may suffice temporarily, they often fall short in terms of scalability and, more importantly, add significant complexity to governance aspects. Modern API Platforms, such as Sensedia's, offer modules dedicated to Governance that enable workflows that improve the API quality. What does that mean? It means that the Platform allows the creation of standardized security and authentication mechanisms - such as masking data, logging, data obfuscation, etc., and ensures that every API meets these standards. More than that, Sandbox environments allow you to test integrations before going live, mitigating the risk of publishing a flawed API. On top of all that, an API Platform not only protects data but protects the company from flaws that can cost millions.
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