Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Biden Administration Issues Executive Order “Promoting Competition” Including Consumer Data Ownership and Banking.
Crowdfund Insider | JD Alois | Jul 9, 2021
As anticipated, the Biden Administration has issued an Executive Order that is said to promote competition in the US economy. The order is extensive and includes a list of 72 areas where Joe Biden seeks to change. Included in the list is net neutrality, actions seeking to reduce the “trend of corporate consolidation,” prescription drug pricing, occupational licensing, hearing aids, and much more.
The Executive Order also encourages antitrust agencies to “focus enforcement efforts on problems in key markets and coordinates other agencies’ ongoing response to corporate consolidation.”
A new entity called the White House Competition Council, led by the Director of the National Economic Council will be launched to monitor progress on finalizing the initiatives in the Order.
Big tech gets special attention as the White House believes that more scrutiny is needed regarding “mergers, especially by dominant internet platforms, with particular attention to the acquisition of nascent competitors, serial mergers, the accumulation of data, competition by “free” products, and the effect on user privacy.”
See: Monopoly-Friendly Canada ‘Does Not Treat Competition Policy Seriously’
Regarding financial services, the Executive Order worries about consolidation in the banking sector stating:
“Over the past two decades, the United States has lost 70% of the banks it once had, with around 10,000 bank closures. Communities of color are disproportionately affected, with 25% of all rural closures in majority-minority census tracts. Many of these closures are the product of mergers and acquisitions. Though subject to federal review, federal agencies have not formally denied a bank merger application in more than 15 years. Excessive consolidation raises costs for consumers, restricts credit for small businesses, and harms low-income communities. Branch closures can reduce the amount of small business lending by about 10% and leads to higher interest rates. Even where a customer has multiple options, it is hard to switch banks partly because customers cannot easily take their financial transaction history data to a new bank. That increases the cost of the new bank extending you credit.”
There is no mention of the rise of Fintechs which compete with banks that may be able to provide superior financial services, at a lower cost, to both consumers and businesses. In fact, recent policy moves have sought to stem Fintechs from providing services – like allowing Fintechs to receive national bank charters and the about-face on the true lender rule.
See: Penrose Report: Power to the People: Stronger Consumer Choice and Competition
The Executive order does seek to make it easier for consumers to take their financial transaction history data to a new bank when they change providers.
Open Banking Executives Laud Inclusion of Easier Bank Switching in Biden Executive Order on Competition
While some aspects may fall short, one area that may please Open Banking (or Open Finance) advocates is the inclusion of easier bank switching for consumers.
The Executive Order fact sheet states:
“Excessive consolidation raises costs for consumers, restricts credit for small businesses, and harms low-income communities. Branch closures can reduce the amount of small business lending by about 10% and leads to higher interest rates. Even where a customer has multiple options, it is hard to switch banks partly because customers cannot easily take their financial transaction history data to a new bank. That increases the cost of the new bank extending you credit.”
The order “Encourages the Consumer Financial Protection Bureau (CFPB) to issue rules allowing customers to download their banking data and take it with them. ”
See: Better Buy: Square vs. American Express
One of the key aspects of Open Banking is that consumers own their data and NOT the financial services firms. This means the data is only accessible to firms that are approved by the individual. Today in the US, banks and other firms may sell that information to other institutions.
Siamac Rezaiezadeh, Director of Product Marketing at GoCardless, lauded the move by the White House to potentially encourage open banking. GoCardless is a global payments firm that seeks to remove the friction in the transfer process for businesses.
“This is the first step along the path to a truly competitive, open banking ecosystem in the US. The government has now recognized that customer banking data is precisely that — the property of the customer. Before, a more laissez-faire approach to open banking in the US meant that many banks had no incentive to provide third parties with access to customer data. This led to ‘closed banking’ and runs counter to the principles of innovation and competition that open banking is built upon,” said Rezaiezadeh. “What this Exec Order means is, in the near-term, more competitive retail banking in the US by making it easier for customers to switch providers. However, we hope that it will also spur innovation which will make it easier for third party providers to access customer data via APIs. This will enable even greater competition and really push the US down the path of open banking.”
Plaid, one of the largest Open Banking firms in the US, added their approval of the policy for easing the process of changing banks.
See: Financial data unbound: The value of open data for individuals and institutions
John Pitts, Global Head of Policy at Plaid, said that when consumers have the ability to control their own financial data, they get more choices, lower prices, and better service:
“This executive order lays the groundwork for Open Finance in the US, which will help fintechs, banks, and credit unions innovate and compete to offer the best value to consumers, and keep America globally competitive as the world moves to digital finance.”
Continue to the full article --> here
See the Fact Sheet on promoting competition in the American Economy --> here
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