We are concluding our series of fintech related presidential pre-election discussions leading up to November 5th. This week we are opining on open banking and the potential differences between the respective administrations to that fintech sub-sector.
High-level thoughts
Per our previous newsletters, a second Trump administration is likely to continue a regulation light, pro big business approach, consistent with its previous term. On the other hand, a Harris administration would likely impose a more restrictive interpretation to current and future regulation (including fintech). Open banking is a new paradigm which is helping fuel a revolution in financial services.
Let us explain.
Open banking is the ability to securely share, usually through an app, a customer’s financial accounts’ data to access innovative financial experiences from known and new vendors. Compared to traditional processes, this new method of distributing financial data provides end users with a streamlined approach to observe and manage their money, link to a wider variety of service options, including simpler ways to apply for credit. Customers, consumers and businesses, have more choices and are in better control of their data.
For example, if a customer was applying for a loan, all required documentation could be instantly accessed by a lender with the click of a button and those results could be compared. Open banking eliminates the need for manual input of recent financial data and the back-and-forth document exchange of pay stubs, bank statements etc. and speeds up the lending timeline. Furthermore, artificial intelligence may be applied to both sides of a transaction resulting in faster payment to the service provider and at a lower expense to the end user. This is a win-win scenario which was previously only available to closed networks like supply chains, but now unleashed to the public.
In our view, a Harris Administration may direct the Consumer Financial Protection Board (CFPB) to implement the most favorable data collection criteria on consumers, potentially excluding medical debt and limited credit background checks. Trump, on the other hand, would most likely allow the service providers to set their own rules and cherry pick their applicants. We think the answer may be in the middle: too loose, and everybody ends up losing, too strict, and not enough benefit (i.e. why offer the service?). Either way, the open banking genie is emerging from the bottle.
