Fish and chips, “proper” English breakfast, 300-year old pubs and a divinely poured Guinness, all rounded out an amazing trip to London this week for the Open Banking UK & Europe event. And not unlike these wonderful, uniquely British experiences, the UK’s top open banking and open finance firms also took part in another delightfully favorite pastime of the British Isles – a predilection to play in the prediction markets, albeit with slightly less interest in the U.S. presidential election, and much more attention to the greatly anticipated (and needed) final language of the Consumer Financial Protection Bureau’s (CFPB) Section 1033. These bleeding-edge open finance firms are placing a heavy wager that the final language and new rules will be announced at the upcoming Money20/20 conference in Las Vegas in one week.
Some context.
For background, the majority of open banking technology companies operate out of the UK as a result of Sutton’s Principle ( a derivation of notorious U.S. bank robber Willie Sutton’s formulation that he robbed banks because that’s where the money was). In open banking, the UK is where the most robust and detailed regulations are, and the government and Financial Conduct Authority (FCA) have been actively pushing adoption of the technology in an effort to disrupt the card schemes’ and legacy banks’ market power, which have had a stranglehold on controlling the access to consumer and SMB financial information for four decades. As such, much of the technological innovation in the space has been cultivated across the pond, as opposed to here in the U.S. – because one must know the rules of the game before investing capital into the R&D needed for innovation.
Though there exist a few U.S.-based players, notably Plaid, MX, and Finicity, these firms, all data aggregators acting as middle-men between financial institutions and third party service providers (TSPs), have little competition and are not subject to the higher know-your-business (KYB) credentialing and data standardization of their British counterparts. Thus, there exists a horde of open banking specialists in the UK (and EU) ready to invade. They have been sitting on the sidelines, not able to operate in the largest financial market on the planet, because they’re effectively too specialized (have already evolved to meet higher regulatory standards) and/or to undercapitalized (don’t have enough runway to ensure they can push an accelerated GTM strategy when the U.S. regulations do finally get handed down).
…which brings us back to Section 1033 and the UK open banking bet on Money20/20.
The CFPB has been clear that it intends to disclose the final language of Section 1033 late this year, and has indicated that it would most likely be this fall. To be sure, once the language drops, these firms are going to descend on the U.S. market quickly, and for the sake of the consumers and SMBs, this will be a welcome occurrence – greater competition drives accelerated innovation and aggressive unit economics. But like all good bettors, there’s additional information to be processed, speculations to ruminate, and the winners, in this instance, will be those firms who bet right on the timing. So, the bets are in, and the money is largely on the CFPB announcing the final 1033 language at Money20/20, one of the world’s largest fintech forums.
Why? Well first of all, for a much maligned government agency, often (rightfully) criticized for regulatory overreach, it would be a “mic drop moment” for the CFPB to announce at Money20/20, likely to engender a celebration of competency and the meeting of a deadline, both rare feats in government. Or in other words, a healthy deposit of goodwill and credibility.
But there’s a second reason open banking firms are wagering on the timing – it happens to occur one week before the U.S. presidential election.
The CFPB is governed by a single Director, appointed by the President for a five-year term. The current Director, Rohit Chopra, a Biden appointee, was narrowly sworn in by the U.S. Senate on October 1st, 2021. Therefore, Chopra has only two years left, and a Trump win would most certainly augur a much more conservative appointee upon the end of Chopra’s term. Meaning a Director much less likely to fight for the “little people” ( SMBs and consumers), and as a corollary, less inclined to make expanding consumer protections, security, rights, and access to personal financial information a priority for the financial system, especially one where the largest banks and card schemes have outsized influence and control.
For my part, and I’ll be at the event, I’ll wager a proper pint of Guinness that the UK open banking firms are spot on.
Cheers!
