The Clearing House (TCH) showed encouraging progress for the digital financial ecosystem last month when they proposed their model financial data sharing agreement.
Kabbage and Plaid support simple and uniform rules for data sharing. Plaid helps consumers connect their bank accounts to the apps they want to use, so ensuring that consumers get the choices and control they want is a core principle for us. Unfortunately, while TCH asserts that its proposed agreement would increase consumers’ control over their own financial data and encourage innovation, in reality it would do just the opposite.
The TCH model agreement is based on bank-oriented controls that won’t work at the scale of fintech as it exists today, where consumers and small businesses can choose from more than 3,000 innovative apps and services. And it won’t work for a future where those choices continue to grow.
The financial ecosystem is growing and creating competitive market forces that are positive for consumers. TCH’s one-size-fits-all requirements create a barrier to entry for small financial products and innovators, an uneven playing field that exempts banks from contract terms imposed on non-banks, and minimal obligations for banks to alert data recipients to changes that impact their services. This only serves the largest banks in a changing market that competes on bespoke financial services.
In its current version, the TCH proposal would let banks – not customers – decide which data they could share, which apps they get to use, and how customers are allowed to use their own data when they choose to permission it. Banks could block customers from using applications that are more competitive or better designed for their needs and use cases. For example, a bank could stop their account holders from comparison shopping for a better mortgage or small business loan.
The heart of the proposal reflects a vision where your bank must pre-approve any fintech apps before you use them — and the bank could terminate access at any time if the service “contradicts [the bank’s] business guidelines.” This vague wording means your bank could stop you from sharing your own data with a company whose services you choose to use.
It’s concerning to empower a bank to prevent competitive providers, like a payment processor or a personal finance management app, from serving their own customers. This removes consumer choice and potentially forces customers to use the bank’s native product or pay for the privilege of using another application.
There’s no good reason to prevent customers from sharing their own simple account data. In fact, Dodd-Frank Section 1033 protects just this kind of data sharing that customers clearly want. In a national survey commissioned by Plaid in 2018, a large majority of respondents said they should be able to access and share their financial data with others, with no fees or restrictions.
Fortunately, the TCH proposal isn’t the only option for financial institutions. Forward thinking banks, including several of TCH’s members, have signed customer friendly agreements with aggregators that don’t restrict customer data or impose unnecessary fees.
TCH does move the ball on several provisions that are positive for customers. First, it prohibits the sale of customer data without consent, and second, requires customer consent before sharing data. Finally, the proposal ends the collection and sharing of customers’ banking credentials, including usernames and passwords, a goal the fintech community shares wholeheartedly.
The proposal’s request for feedback is most welcome, but everyone – customers, fintechs, regulators, and banks — should be skeptical of overly prescriptive terms that put large institutional interests ahead of customer choice and open innovation.
TCH did well to generate this model agreement in response to growing demand for consumer-controlled financial data, but the details show that we still have a way to go. Customers should have predictable experiences and competitive products whether they bank with a major Wall Street institution, a digital native neobank, or their neighborhood credit union.
John Pitts is policy lead at Plaid and Sam Taussig is head of global policy at Kabbage.
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