United States of America

Over 90% of Americans have access to the internet, with 99% of 18-29-year-olds using the internet (compared to 75% of 65-year-olds and over).

Open Finance began in the USA in c. 2000 with Yodlee and Cashedge providing services for account aggregation using screen scraping technology and without clarity on the regulatory structures. Unlike in Europe, where the fintechs were the first adopters, the large US financial institutions in banking and investment were the first to adopt, and by 2004 you could log in to many of the large institutions and see financial balances and transactions held in other brands. 

Screen scraping technology requires the consumer or small business holding the account to share their static password with another party. Because these customers had become familiar with the process offered by their trusted incumbent institutions, they were more ready to adopt offers by new fintech brands providing innovative solutions to market problems. As a result of this unique market dynamic, growth of solutions powered by account aggregation, now referred to as open finance, were much higher per capita than in any other market. Between 2005 and 2018, growth rates were estimated to have reached 80m or roughly ⅓ of US citizens with a bank account. 

Some of these new fintech solutions were highly competitive with incumbent institutions and partly driven by the arrival in this time period of the iPhone and the transformational user experience delivered by apps. 

One peculiar unintended consequence of the current financial regulations is a rule which requires financial institutions to supervise the technology providers which connect to them. The rule was intended to ensure oversight of componentry vital to the security and stability of the FI and not to supervise data flow to a potentially competing institution. This led to various questions about liability. 

Due to the (c.2015) transition from screen scraping technology to API technology, the data donor moved from a passive role to an active technology role and for reasons relating to the aforementioned competition and potential risks, as well as cost recovery, started to make commercial decisions on the contractual basis of providing API access. This control of access created some significant market incidents where fintech providers with high levels of adoption were restricted from providing services. This meant that the end customer did not have complete freedom to choose which fintech applications they wished to use.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was enacted in 2010 and contains, within Section 1033, provisions to safeguard consumers when they share their data. The act contains executive powers to the Consumer Financial Protection Bureau (CFPB) to develop rulemaking to give effect to the Act. In 2016, the CFPB began a long running consultation to make use of their powers in the domain of Open Finance. 

In parallel to the review by the CFPB, the Financial Services Informations Sharing and Analysis Center (FS-ISAC) set up the Financial Data Exchange (FDX). FDX is a non-profit body developing interoperable technical specifications for the transfer of financial data between actors. The standards developed between the banks, other large FIs, fintechs and aggregators have led the way as the market transitions from screen scraping to APIs. 

Given the need for the transition from screen scraping (where the FIs were passive) to providing an API (where the FIs have a proactive technology role), and the need for the large FIs to supervise the technology firms that connect to them, the FIs entered into bespoke bilateral contracts with the account aggregators. These agreements are opaque to the customer and provide a unique customer protection and liability framework, per agreement. 

Some of these agreements have not only taken a long time to negotiate, but effectively exclude new market entrants, as the large FIs have no interest in long negotiations with new entrants with no market share.

The CFPB has received a lot of information and lobbying from various parties and groups and it was not clear to them to what degree market forces would create the level playing field for competition and consumer protection outcomes relating to data sharing. In October 2023, the CFPB released its Notice of Proposed Rulemaking implementing section 1033 of the Dodd-Frank act.    

This ruling is proposed in order to enforce the provisions of section 1033 within the Consumer Financial Protection Act of 2010 (CFPA). The proposed ruling aims to mandate that both depository and nondepository institutions provide consumers and authorised third parties with specific data pertaining to consumer transactions and accounts. It also outlines responsibilities for third parties that access consumer data, including essential privacy safeguards. Furthermore, it establishes fundamental criteria for data access and encourages the development of equitable, transparent, and all-encompassing industry standards.

The proposed ruling would ensure all banks allow consumers to share their data upon consent via API, bringing an incumbent-desired end to screen scraping. However, it is proposed that incumbent banks will not be permitted to charge aggregators for the use of these APIs.

The primary obligations of data providers are as follows:

• Ensure the availability of all transactions from the previous 12 months, including the most recent card authorisations.
• Include any information on fees, yield, or rewards that is accessible.
• Provide essential account verification data, such as name, email, and address (excluding date of birth).
• Establish secure APIs with transparent and standardised documentation.
• Maintain a minimum uptime of 99.5% and refrain from unjustly limiting access.
• Prohibit the imposition of fees for API access or API calls.

Key responsibilities for authorised third parties include:

• Disclose to consumers how data is utilised and processed, as well as their privacy rights.
• Utilise standardised APIs and security models, while keeping written policies in place.
• Refrain from using data for targeted advertising, data resale, or cross-selling (except when consumers have implicitly opted in).

There are some concerns regarding the CFPB’s proposed scope delivered through NPRM. Some data assets that are already in wide usage in Open Finance, such as from mortgages, small business accounts and retirement products are excluded from the initial coverage of both access and customer protections. 

FDX is developing interoperable API standards for Open Banking. With over 10,000 financial institutions serving consumers and small businesses, the development of a uniform Open Banking system involving bilateral data access agreements may be a practical impossibility.

According to FICO, 53 million people in the USA do not have enough data in their credit files to generate a credit score. A freeing up of data could allow for a more inclusive credit system based on other data points.

A 2021 survey by Axway indicated that just over 40% of United States citizens use one or more financial or budgeting apps beyond their own bank’s mobile app. In the same survey, almost 52% of those answering said they hadn’t heard of Open Banking and could not provide a definition.

Finastra research indicates that attitudes to Open Banking in the US had “matured” over 2022, with 68% of respondents viewing it as essential or important, up from 48% in 2021. Finastra’s ‘State of the Nation survey showed financial institutions in the US had a significant jump in thinking Open Banking was essential.

It is recognised that there is a racial gap in financial inclusion in the USA. The Federal Reserve reported in 2016 that a white family’s median family wealth was $171,000, compared to a black family’s at $17,600. If these families had access to the same financial products as white US citizens, McKinsey & Company thinks that approximately $2 billion in incremental, additional annual revenue could be raised by financial institutions. 

Thus in the USA, there have been considerable efforts to build access for underrepresented communities to banking services, as opposed to necessarily using Open Banking to improve credit possibilities. 10% of US citizens do not have a checking or savings account, known as being unbanked, according to a poll conducted during the summer of 2021, and a further 24% are ‘underbanked’, people who do have a checking or savings account but who have relied upon a service through something other than a credit union in the past year for such actions as paying a bill or cashing a check. The 10% of unbanked were more likely to be female, of lower income and of the younger Generation Z.

In 2019 a survey by the Federal Deposit Insurance Corporation indicated that 16% of unbanked households said they didn’t have an account because they “didn’t trust banks”. Initiatives, such as this by financial institution Wells Fargo are trying to improve access to banking and their digital services, Greenwood, which targets Black and Latino customers who are unrepresented in digital banking and MoCaFi, created to reduce the racial wealth gap, are examples of banking platforms trying to encourage the use of banking services. 

Rural areas of the US, with their 33 million customers (as of 2019), are being underserved with bank closures creating ‘banking deserts‘. With urban bank branches being more profitable, there is a possibility for banks to invest in digital services to access remote customers.

The Consumer Financial Protection Bureau (CFPB), aware of the power Big Tech could yield with their collected data and market share, asked in October 2021 for details of the products, plans and practices when it came to payments of Google, Amazon, PayPal, Square, Facebook and Apple. The CFPB wants to prevent an undermining of market competition, as seen in China with WeChat Pay and AliPay, which dominate the market and will use their research to affect policy when it comes to the future of payments.

Platformable claims that as of Q4 2021, the US and Canada have 30 Open Banking platforms, 296 Open Banking API products and a growth rate of 76% compared to Q4 in 2020. For comparison, Europe and Scandinavia’s growth rate was 204% over the same period. Of these API products, 49% of them deal with accounts and payments.

As of October 2023, there are an estimated 80 million regularly active accounts using Open Banking services.

The USA remains the global market leader, market penetration per capita of customer applications consuming the output of open finance for both data and increasingly payment initiation. Service providers in this domain are increasingly adding further valuable services such as credit scoring and identity services. The formalisation of the CFPB rulemaking will undoubtedly create a more level playing field for participants and increase confidence amongst customers. As the technical standardisation process and data scope in the APIs increases, the US will have an opportunity to build on its success and drive further value, convenience and financial inclusion to the people and businesses of the country.   

The USA ranked 26th out of 134 countries in Wiley’s Digital Skills Global Index 2021.