Open Finance Takes Center Stage in Washington
Open finance - which broadly refers to the structured sharing of data by consumers with – and between – their financial services providers is premised on the right of an individual to actively permission access to some component of their own financial data. There’s been no greater factor in the explosive growth of fintech innovation and adoption over the last decade and right now, regulators in Washington are considering its future.
Congress passed a financial services reform bill following the 2008 financial crisis that included a provision compelling financial institutions to provide a customer with access to their data upon request. This provision, commonly referred to as Section 1033, codifies a consumer financial data access right, subject to rules prescribed by the Consumer Financial Protection Bureau (CFPB). The bill was signed into law way back in 2010, though the CFPB’s process to implement this section of the law is only now underway. Once the CFPB promulgates a Section 1033 regulation, given the agency’s broad discretion, the consumer-permissioned data sharing ecosystem will profoundly and permanently change.
Why We’re Engaging Washington
We believe that debt management should be far easier than it is. That’s why we founded Method in the first place, after discovering that making a simple payment to a student loan was a costly and challenging endeavor. The problem was two-fold. Providing liability management within an app has typically involved integrating brittle screen scraping connectivity and manual work, such as mailing paper checks and return reconciling. What’s more, U.S. regulations have long made it difficult for a company to provide a comprehensive debt management system within a single platform. At Method, we address the first problem by providing companies with turn-key infrastructure to add seamless debt repayment to their apps and services. Now we’re tackling the second one too.
Why Method’s Approach to Open Finance is Different
Last week, Method submitted a formal response to an outline of proposals and considerations put forth by the CFPB as part of its Section 1033 rulemaking process. Our perspective is unique, even among the (relatively small) data aggregation industry, which often contemplates the issue of third-party, consumer-permissioned account authentication as a binary choice between, on the one hand, credential-based screen scraping and, on the other, token-based application programming interface (API) connectivity. In reality, and as Method’s technology demonstrates, other technology solutions exist that both enable safe and secure consumer authentication and eliminate the need for financial institutions to invest in significant technology enhancements. Method’s authentication solution requires a consumer only to provide elements of their PII, such as their name and telephone number, as well as their account number. With this information, and after transparently presenting the consumer with disclosures regarding, among other items, what data is being collected, and for what purpose, Method is able to utilize integrations with wireless carriers and a major credit bureau to authenticate the consumer using those companies’ existing, regulated customer authentication processes. This authentication method today provides hundreds of thousands of consumers with the ability to share data access to third-party tools using the Method platform.
As detailed in our response to the CFPB, a Section 1033 rulemaking should clearly require financial institutions to establish and maintain third-party data access portals that can be accessed using the consumer’s PII and account number. In fact, Method’s authentication process very well could provide the CFPB with a novel solution to address its concerns regarding the continued proliferation of credential-based authentication within financial services. While the industry has over the last two decades been pursuing open finance via credential-based access, our technology enables the elimination of consumer credentials in the consumer-permissioned data access ecosystem in favor of secure, direct and regulated data flows.
More Data, More Innovation
The CFPB’s current proposed framework includes only consumer deposit, transaction and credit card accounts within the scope of customer-permissioned access. This unfortunately excludes crucial account data – including mortgages, student loans, auto loans, personal loans, and additional types of consumer liability accounts – that a litany of existing use cases on which customers rely, today, to manage their financial wellbeing, make payments, or engage in other financial activities. Method today provides hundreds of thousands of consumers with the ability to access and share access to a wide range of their debt accounts. Through these connections, and the use cases that Method enables, consumers can see the totality of their liabilities across multiple accountholders, service those debts more easily, access refinancing opportunities to lower their interest payments, automate their bill payments, and more. The implementation of a data access right that does not expressly include all liability accounts threatens this ability, particularly for lower-income and online-underbanked consumers at a time when total consumer debt reached $14.6 trillion last year. Limiting the scope of accessible data is limiting the potential and progress of future innovation. Our turn-key infrastructure is designed to power better debt management innovation at a time that Americans need it most.
Our first foray into policy engagement will certainly not be our last. Issues of permissioned data access, better liability management and financial inclusion are simply too important to observe from the sidelines. As data sharing looks to rely increasingly less on credential-based authentication methods, our perspective (and solutions) are increasingly needed. That’s why we’ll be embarking on a journey to make sure that policymakers in Washington, D.C. better understand the wide range of technologies and use cases that are currently used in the consumer-permissioned data access ecosystem.