Tom carpentier, director of public affairs and marketing of the Financial data exchange, shares his latest thoughts on what drives the evolution of Open Banking in the United States and Canada, the challenges and the progress made so far
Can you tell us more about FDX and its members? How does FDX fit into the Open Banking ecosystem?
FDX, which stands for Financial Data Exchange, is a non-profit financial industry standards body. FDX develops and promotes the adoption of a common, interoperable, market-driven, royalty-free API standard for Open Banking and Open Finance data sharing, aptly named FDX API.
A good analogy to understand what FDX does is the Bluetooth standard. Bluetooth has brought together many manufacturers of consumer electronics to create a standard specification so that consumers can use products from different brands interoperably. Likewise, FDX brings together various players in the financial industry around a common API standard so that consumers can share and use their own financial data between financial institutions, fintechs and intermediaries in a secure and transparent manner. regardless of where a consumer trusts or what fintech. the app they might choose to use. And more importantly, the adoption of the FDX API replaces the need for data sharing that relies on shared login credentials. networks, financial sector groups and other stakeholders. Additionally, the FDX API itself is widely implemented in the financial services industry and is currently used by 22 million consumer accounts.
How do FDX standards pave the way for Open Banking in the United States and Canada? Can you describe the API FDX standard for Interoperable Open Banking?
As Open Banking and Open Finance (generally understood as a wider range of sharing financial data beyond banking data) emerge with different systems and regulations across the world, the common thread is an interoperable API standard. that allows consumers to share their financial data transparently. and securely with different financial service providers. And while many jurisdictions have developed an API standard through regulation, the financial industry in the United States and Canada has come together under FDX to develop a market-driven standard that we believe is best suited to respond to market needs and will be better able to predict and adapt quickly to changing market innovations and consumer demand. In addition, market-oriented standards can easily be adapted to suit any regulatory or legal requirements in each jurisdiction.
Regarding the FDX API in particular, we are currently at version 5.0, and this is the foundation for standardizing FDX data sharing with user experience guidelines, taxonomy, registry and the future. FDX certification framework. The FDX API provides consumers with the ability to access over 600 different financial data elements including banking, tax, insurance and investment data, making it one of the most popular Open Finance standards. complete in the world. The FDX API is designed to improve interoperability and performance for the full range of current and future data sharing, and uses core and globally interoperable standards for security, authentication, data transfer , authorization, API architecture and identity.
How would you describe the state of Open Banking in the United States and Canada? Which round are we in? Where is the Open Banking industry heading in the United States and Canada?
I always love a baseball question! I would say we’re in round 2 or 3 in the US and Canada, but let me explain.
First of all, at FDX, we generally define Open Banking and Open Finance as the ability of users to access, share and leverage their own financial data to benefit and improve their financial lives. By this simple definition, I would say that the United States and Canada, while very different, are quite advanced. Consumers in both markets have been using fintech apps and sharing their own financial data for years. We might not have all the rules of the road in place and consumers might not be familiar with the term ‘open banking’, but we wouldn’t have the explosion of fintech companies and technology. innovation if consumer demand for such services was not firmly in place. If I stop my answer there, I guess I could say that we are in the 5th or 6th round of Open Banking.
However, I still think we are in the first third of the game because it is still too early for innovations in financial data sharing. Market players and roles are constantly evolving, and I also think we’ve only scratched the surface of all the ways that consumers will be able to share and use their own financial data in the future.
Finally, I generally describe Open Banking and Open Finance as having two halves – a “what” and a “how”. The “what” is often determined by legal agreements between financial services entities or defined in laws or regulations. The “what” encompasses many decisions and guidance regarding rights to financial data, determinations about what constitutes derived data, and how the different entities and roles in data sharing are regulated.
On the other hand, the “how” of Open Banking or Open Finance involves the technical means and methods which allow all the financial data authorized by the user to be shared and transmitted in complete security between data providers. , data access platforms and data recipients.
With that in mind, FDX is working hard to accomplish the “how”, but much of the “what” remains to be determined in the United States and Canada. We still have a lot of rounds to play!
How would you describe the current financial technology regulatory environment in the United States and Canada?
I have to start by saying that as a technical standards body, FDX is currently prohibited from taking a position on most legislative and regulatory policy issues. FDX strives to educate policymakers and regulators on its standards, and we advocate for market-driven technical standards, but we generally stick to the technical workings of the “How” as I said earlier.
Having said that, my general opinion is that both countries, and frankly most of the world, are stuck trying to adapt old financial laws and regulations to new and innovative financial ventures. These legacy regulatory structures can cover many of the activities of FinTech companies, and bilateral agreements with regulated financial institutions may actually extend the spirit of regulation to FinTech companies, but it just doesn’t work very well.
All to say, I think you’d be hard pressed to find someone in the Open Banking and Open Finance ecosystem who doesn’t think some regulatory clarity and modernization would be beneficial.
What are the challenges to overcome before the United States and Canada can implement Open Banking? When Open Banking is implemented, will it be driven by regulation, market innovation, or both?
As I mentioned earlier, in many ways the United States and Canada both have open banking or strong open finance already in place. I can go to an app store today and start using my own financial data with lots of apps that help me budget, improve my credit score, get me a loan, give me the ability to make payments, show me all my accounts in one. place, compare services and fees, etc. In addition, and thanks to FDX, the two countries have implemented a common API standard developed by the industry that ensures interoperability across the spectrum of financial institutions, fintechs and intermediaries.
On the other hand, neither country has yet a fully defined regulatory structure called an “open bank”. I think that will change soon in both countries, as I expect to see rules proposed by the CFPB in the US and an implementation of the Canadian Open Banking Advisory Committee final report in the next 12 months. month. The remaining challenge will be to come up with rules and regulations that properly balance the roles of government and the market so that the rules are clear and also allow the market, innovation and competition to continue to thrive.
At the end of the day, when we look back in about 5 years, I think the United States and Canada will end up with hybrid systems of open financing. I also believe that countries that started with primarily regulatory open banking approaches will also end up with hybrid frameworks in the future.
What challenges does Open Banking present to banks in these markets?
I often get a form of this question and it usually seeks to define a “Banks vs. FinTech” type narrative. However, I truly believe that Open Banking and Open Finance are a high tide that lifts all boats. Of course, banks and financial institutions are the old providers of financial services in Canada and the United States. It can therefore be difficult to adapt to a competitive landscape that increasingly includes a diversity of providers and where consumers demand a choice of financial services. However, banks have built up decades, if not centuries, of consumer confidence that they can tap into open banking. Additionally, there is no rule that says a fintech app must be provided by a third party. In this, I think that we will see more and more banks providing fintech-type services to clients and / or providing an app-store type interface that is easy for their clients to use with their data.
Read the second part of the interview for key insights on data sharing, consumer education and the agenda for the future of Open Banking in the United States and Canada.
About Tom Carpenter
Tom is the Director of Public Affairs and Marketing for the Financial Data Exchange (FDX) where he leads organizational communications, thought leadership and brand development with financial industry stakeholders, policymakers and the media. Prior to FDX, Carpenter spent nearly two decades developing and advocating for complex public policy in Washington – starting as a legislative assistant to Congress, then as a federal lobbyist and senior government affairs official, managing legislative advocacy campaigns and political brands for Fortune 500 clients and professional associations. to startups.
Financial data exchange, LLC is a non-profit organization dedicated to unifying the ﬁ nancial industry around a common, interoperable, royalty-free standard for secure and convenient access to consumers and businesses to financial data. FDX empowers users through its commitment to the development, growth and industry-wide adoption of its API, in accordance with the principles of control, access, transparency, traceability and security. Membership is open to financial institutions, financial technology companies, and other industry stakeholders.