For the land of free markets and open competition, the US has surprisingly little choice when it comes to payments. Americans use cards for most of their purchases, and most of those transactions are handled by just two companies, Visa or Mastercard, which levy billions of dollars of fees on the merchants that rely on them.
For years, policymakers have wielded legislation and lawsuits to try to reduce the companies’ market power, with limited results. A new rule from the Consumer Financial Protection Bureau, due to begin taking effect in 2026, offers a more promising approach.
Known as the “open banking” rule, the idea is to give customers — instead of the banks — the power to share data about their accounts, credit cards and a few other products with third parties. For consumers, this should simplify the process of switching banks or cards, applying for loans, or signing up for financial apps. For retailers, it should be easier to accept payments directly from a customer’s bank account, bypassing the card networks altogether.
In addition to reducing fees, that should invigorate an industry where innovation and competition have long been lagging. A similar rule in Europe has led to a surge in pay-by-bank offerings. In the US, where consumers have been slower to take up such tools, the benefits could be pronounced.
As one example, Walmart Inc. is pioneering an instant pay-by-bank offer next year that will use new real-time networks to eliminate the one- to three-day settlement delay in existing systems. That will substantially reduce both fees and the risk that a payment later gets reversed because of chargeback fraud or insufficient funds. The CFPB’s rule should make it much simpler for customers to take advantage of such products.
All of which sounds great — except to the banks, which quickly took the unprecedented step of suing one of their own regulators to block the rule from taking effect. They of course have an interest in defending their market power and card revenue from added competition. They also argue that the CFPB overstepped its authority, a question that will be up to the courts to answer.
But on one further issue, the industry has a point. Allowing third parties easier access to account data is not without risks, and banks are eager to avoid catching the blame. After banks released the person-to-person payments app Zelle, grandstanding politicians wanted to hold them responsible for every fraudster that tricked customers into sending money. Open banking can’t work unless the CFPB does more to crack down on scammers, lax standards and unscrupulous practices in the business, including aggregators that use “screen scraping” to vacuum up excessive data.
The good news is that, as consumer demand for online financial products grows, banks are already developing sophisticated methods to securely share customer data, including tokenized account numbers and improved application programming interfaces.
With sufficient attention from regulators, there’s good reason to think open banking can be just as secure as the traditional kind — while also being cheaper, faster and easier to use. A win-win, you might say.
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Bloomberg News provided this article. For more articles like this please visit bloomberg.com.
