The Consumer Financial Protection Bureau and industry participants are pushing for multiple organizations to set open banking standards, but so far only the nonprofit Financial Data Exchange has applied.

A single standard-setting body would create an unfair monopoly over standard-setting, say regulators and attorneys who follow the industry.

The Reston, Virginia-based organization also acknowledges in its application that some aspects of the standard-setting process will only include FDX members.

Certain groups can become FDX members at little to no cost, FDX spokesman Don Cardinal said by email.

“FDX welcomes competition,” he said, noting that any individual or organization is still free to apply to set open banking standards.

The CFPB released Rule 1033 — regulations governing open banking — on Tuesday, and is accepting applications for standard-setting bodies that will determine the benchmarks financial institutions must meet before letting consumers share granular financial details. The agency began accepting applications from aspiring standard setting bodies last month.

Open banking gives consumers more control over sharing their financial data, including spending and deposit history, with financial institutions, such as lenders or credit card issuers.

FDX sets standards for data-sharing between financial institutions and consumers in the United States, and applied to be an open banking standard setting body on Sept. 24. As of Thursday, it remained the only applicant.

When CFPB Director Rohit Chopra addressed the Federal Reserve Bank of Philadelphia on Tuesday, he said the agency wants multiple applicants.

“Standard-setters must reflect the full range of relevant interests,” he said at the bank’s annual fintech conference on Tuesday. That includes “incumbents and challengers big and small, consumers and firms, and ideally would also represent the perspectives of firms that don’t even exist yet.”

In remarks to the Financial Data Exchange Global Summit in March, Chopra said standard setting organizations will play a crucial role in open banking, but said the CFPB needs to be vigilant so that those standard setters don’t weaponize the process to the advantage of large financial institutions.

FDX was founded in 2018 and has a governing board made up of executives from banks and fintech companies, including JPMorgan Chase, the largest U.S. bank, and investment firm Fidelity.

FDX was expected to be the first group to apply, said Kim Phan, a partner at the law firm Troutman Pepper. “They just had to adapt what they were already doing,” Phan said.

Still, regulators want others throw their hats in the ring, she said. The CFPB doesn’t “want to set up monopolies,” Phan said. “They’re not trying to crown FDX as a kingmaker. They’re hoping to have at least some competition.”

FDX is a paid membership organization, she noted, and if they are the only standard-setting body “that might disadvantage non-members.”

Under FDX processes any company or organization that wants to participate in other parts of the standard-setting process — such as joining meetings or suggesting changes to the standards — has to be an FDX member, the nonprofit said in its application.

“This ensures we can fund the organization’s standards setting activities,” the application says.

That language suggests “there is probably a valid concern,” Phan said. 

FDX has a tiered membership structure, with fees that are based on the member’s size, and consumer groups can participate at no cost, Cardinal said. The API specification is freely available to any individual or organization, he stressed.

FDX’s approach helps it "create useful standards—in an open and balanced way—that benefit everyone in the market, regardless of how many standards bodies the CFPB ends up recognizing,” Cardinal said.

In a letter to the CFPB, an attorney from the National Retail Federation urged the agency to limit FDX’s term as a standard-setting body to a single year, citing the organization’s preferential treatment of its members.

“This approach would also allow other applications to be submitted,” wrote Stephanie A. Martz, chief administrative officer and general counsel for the National Retail Federation.

However, having a single entity setting the standards could be an advantage in some ways, said David Soberman, a professor of marketing at the University of Toronto who follows the payments industry. 

A single set of standards would be more broadly understood, he said. “This will assist in the education of consumers regarding the benefits and risks of sharing your banking information,” he said.

By Patrick Cooley on Oct 24, 2024
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