July started off with the Biden Administration issuing an executive order that tasks multiple regulatory bodies of the Federal government to use whatever authority at their disposal to promote competition in the American economy. The order has a few direct and indirect implications for fintech.
Of note, the order also lists 72 initiatives aimed at axing concentration and monopolistic behaviors across industries from big tech to broadband to farming and financial services. Banking has been especially prone to excessive consolidation – the number of commercial banks in the U.S. has dropped from 14,400 to around 4,400 over the last 35 years. Concentration in banking is bad because it can lead to unfair practices, such as excessive fees, as we discussed in last month’s newsletter.
So what is the big fintech deal (BFD)?
The order calls for the Consumer Financial Protection Bureau (CFPB) to issue rules to “make it easier and cheaper to switch banks by requiring banks to allow customers to take their financial transaction data with them to a competitor.”
This is a good thing for fintech because it gives the CFPB fresh fuel to prioritize defining data access rights for consumers, as outlined in 1033 of Dodd-Frank, as we discuss further on the Insights page.
What’s the catch-22?
While this order is a step in the right direction, there are two elements that we’re keeping an eye on. There is a reason creative alternatives for aggregating bank data exist, as the Atomic team from Unbill and Quovo know intimately.
Banks aren’t eager to bury the hatchet with fintech companies they’ve been churning customers too. Banks may further block fintech companies following a new series of risk management proposals issued on the heels of the executive order. The proposal issued by bank regulators, including the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC), calls for banks to tighten their risk management protocols for interacting with fintech companies.
This signals an opposite direction from where the CFPB is headed in promoting data portability and access.
Second, the executive order narrowly calls for probability of “banking data”. Our Perspective: this executive order is about empowering consumers, and to get there, we need to emphasize the probability of boarder scope of financial data, including data in the traditional payroll system, as we outline in our own comment letter to the CFPB on 1033.
We unpack the order further in this issue, as well as spotlighting our latest client and partnership announcements.
P.S While POTUS threw down the axe on M&A, Atomic had our own axe-llent adventure this week to welcome a few new members of the team.
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