CFPB Section 1033 Rulemaking May Start ‘Race to the Top’
Good morning, and welcome to Protocol Fintech. This Friday: CFPB weighs in on financial data, Revolut pays with crypto, and OCC raises fintech.
Off the chain
I get nostalgic for the weirdest things — like Stripe’s announcement that it’s now fully available in Thailand, one of 47 countries where it operates. I remember noticing a Canadian flag in Stripe’s Second Street office in San Francisco—this was long before it devolved to the Mission District and then the suburbs—and asking Patrick Collison about it. He told me that his startup was actually planning to go north of the border. Stripe remains cautious about its IPO plans, but its global expansion tells you all you need to know. Combine a mature (and hopefully profitable) domestic business with fast-growing international markets, and you have a combination that investors are likely to swipe upwards.
– Owen Thomas (e-mail | twitter)
CFPB Wants a ‘Race to the Top’
The Consumer Financial Protection Bureau began a rulemaking process to give consumers more control over their financial data, a step toward an open banking concept that director Rohit Chopra told the Protocol he hopes starts a “race to the top.”
Consumers benefit when markets are more decentralized, Chopra said in an interview Thursday. “I want a financial market where consumers can switch products more seamlessly, and where financial companies have to constantly compete to keep them,” he said.
- Chopra announced the launch of the long-awaited rulemaking process in a speech on Tuesday at the Money20/20 conference in Las Vegas. Congress tasked the CFPB with creating standards for data sharing under the 2010 Dodd-Frank Act, but the agency had not yet activated its authority.
- “Our goal is to accelerate the shift towards open banking and ultimately give more leverage to consumers to find the products that are best for them,” Chopra told Protocol.
- The CFPB released a 71-page outline of its priorities in the rulemaking process, which begins with a review by a small business panel, as required by law. A formal proposal will come next year and could be completed by 2024.
The rule is focused on transaction accounts, such as deposit accounts and credit cards. As described in the CFPB’s ruling, one goal is to allow consumers to move their data as needed, including pulling transaction history from one account to another.
- Fintech trade groups cheered the announcement, while the banks have offered support for open banking in the concept, but insist that there must be equal standards for all players. Some financial institutions have already taken steps to ensure secure data sharing, the trade group American Bankers Association said in a statement Thursday.
- The CFPB wants to balance customer access to data and security — something Chopra says goes beyond preventing corporate data breaches.
- “I think it’s also a question of: What do people do with the data once they get it?” Chopra said. “Are they actually using it to offer a product or take out a loan? Or are they going to monetize it by reselling it or redistributing it? Making sure people only use it for the limited purpose that the consumer wants it to be used for is a key issue for us.”
The rulemaking comes as the CFPB faces a significant legal threat. A federal appeals court ruled last week that the CFPB’s funding mechanism is unconstitutional, potentially undermining several of its most important rules.
- Asked about the decision’s potential impact on that rulemaking, Chopra said the agency is moving forward.
- “This is a dormant authority that is over a decade old,” Chopra said. “I think it’s one of the most important rules the CFPB is working on, or will ever work on in its history. There’s a lot of appetite from across the industry and the legal community to get this done. We’re all reviewing litigation involving the CFPB. We have done since day one. But we’re moving forward with this one.”
The CFPB also announced this week at a press conference with President Joe Biden new guidelines aimed at cracking down on “junk” fees, including overdrafts. Chopra said there are links between the fight against frivolous fees and the push for open banking. “I think in a world where there’s more seamless switching, you’re going to see a race to the top when it comes to customer care, when it comes to fees and when it comes to new features that really help people.”
– Ryan Deffenbaugh (e-mail | twitter)
A version of this story first appeared on Protocol.com. Read it here.
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On the money
Shopify received an earnings boost. The company’s shares jumped 17% after the e-commerce company reported a lower-than-expected third-quarter loss and revenue that beat Wall Street estimates.
The Ministry of Finance has some technical problems. So many investors are trying to buy I Bonds – which pay interest of 9.62% if bought by October 28 – that the Treasury is warning that the overwhelmed website may not complete all the orders in time.
Revolut will let users pay in crypto. The digital banking firm is adding a feature that allows customers to make daily purchases with their crypto balance.
Google is building up its Web3 infrastructure offerings. The search giant is launching a cloud-based node engine service for Ethereum developers and projects.
A decision on election games may come today. The CFTC set Oct. 28 as a target date to rule on whether fintech startup Kalshi can offer prediction contract trading based on the midterm elections.
OCC deals with fintech
The Office of the Comptroller of the Currency is launching a new office of financial technology early next year in response to the growth of fintech, the agency said Thursday. The new office will “build on and incorporate” the Office of Innovation, which the agency started in 2016.
“Financial technology is changing rapidly, and bank-fintech partnerships are likely to continue to grow in number and complexity,” said Michael Hsu, Acting Comptroller of the Currency. “To ensure that the federal banking system is safe, sound and fair today and well into the future, we must have a deep understanding of financial technology and the financial technology landscape. The establishment of this office will enable us to be more agile and to promote responsible innovation, consistent with our mission.”
Some progressive senators have urged the OCC to change its previous guidance, which gives chartered banks the ability to provide crypto custody, hold cash reserves that back stablecoins and use blockchain and stablecoins to verify bank-to-bank payments. The senators say the guidance exposes banks to “unnecessary risk”. Meanwhile, several Wall Street firms and major banks are moving further into the use of cryptocurrencies.
– Tomio Geron (e-mail | twitter)
The diagram
The ways in which American households accessed their bank accounts and finances have changed significantly over the past five years. Mobile banking rose sharply, while access to accounts using a cash register or ATM declined. The change was “consistent with difficulties that households may have experienced in visiting a bank branch since the beginning of the COVID-19 pandemic,” according to the FDIC.
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