Is the US Going to Mandate Banks and Credit Unions Provide an API to their Customers?

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As banks across the European Union are rushing to meet the Payment Services Directive, Part 2 (PSD2) which forces them to provide consumers free electronic access to their financial information in a standardized API, the CFPB in the US has shown an interest in a similar measure. The CFPB recently concluded a request for comment to determine the “challenges consumers face in using and securely sharing access to their digital financial records.” The request resulted in 71 comments from a diverse set of respondents including individuals, credit unions, banks, trade associations, data aggregators and fintech startups.

Given the Bureau’s previous public comments, there is a strong likelihood that the US will follow their European counterparts and require financial institutions to provide consumers free, electronic access to their financial information via a standardized API. And given the public comments, this change will likely come in conjunction with more stringent privacy and security regulations that cover non-bank third parties who handle consumer financial information like data aggregators.

Most banks and credit unions view this change as an added cost and a threat to the status quo. But it also provides an opportunity for early adopting financial institutions. Free and open APIs have propelled the growth of many companies in the past. Facebook, for instance, saw tremendous growth after they released a number of APIs that enabled other companies to access data with the customer’s permission. Some even argue that it entrenched them as the social media leader. Facebook ensured their company’s success by aligning other companies’ success with theirs.

Financial institutions that embrace a ‘bank-as-a-platform’ have the opportunity to be at the center of the next wave of financial technology innovation. By offering consumers an open API to securely access and share their financial information, banks and credit unions can encourage an ecosystem to develop around their product, attract a new set of consumers, and ensure their future success. Facebook ensured their dominance through open APIs, and early adopting banks and credit unions have the same opportunity.

Consumers will undoubtedly enjoy the choice afforded by a securely implemented open banking API, but financial institutions also need to ensure they implement it in a way that gives the consumer control. APIs will need to be designed in a way that gives consumers the ability to limit who has access to their data, when they have access to it, and what type of information they have access to.

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