The era of open banking, where consumers and small businesses have full control of their financial data, may finally be upon us. 

The U.K., Australia and the European Union have led the way, but there is work afoot in the U.S. to establish private-sector working groups to begin to design voluntary open banking standards. However, these groups can only take us so far. Lawmakers and regulators must regard these voluntary consortia as a conversation starter, not an endpoint. 

On their own, these bodies will not deliver open banking. And the nature of private sector-led efforts, in which only some industry stakeholders participate, could mean both asymmetry of adoption and of consumer protection. Policy makers will need to work together to update federal regulations to foster a system in which consumers have full utility over all of their financial data, regardless of who they bank with or what fintech tools they use. That means creating rules for accountability and liability to ensure the entity responsible for a data breach makes the consumer whole for any resulting financial loss given sufficient evidence of that third party’s responsibility. It also means, as a foundation to building such a system, asserting consumers’ and small businesses’ rights to permission access to all of their financial data.  

If implemented properly, open banking will preserve the security and stability of the financial system while empowering customers and accelerating opportunities for innovation. The issues outlined above are difficult ones, but, if properly formed and scoped, industry-led working groups can build the foundation policy makers need to unleash the promise of open banking for consumers and small businesses.  

The critical areas of concern for these groups must include scope, permissioning, accountability and liability, legal and regulatory structure, technology, governance and oversight. To properly consider these topics, these standards bodies must have representation from all stakeholders in the financial services and fintech sectors. Lenders and consumer organizations must also be included, and representatives from each sector should be considered essential and co-equal. The groups also should include government representatives whose primary role should be to encourage participants to look beyond commercial interests and keep consumers’ interests at the center of the debate.

Recognizing that technological standards will be a critical element of the output of any successful open banking standards-setting group, the work being contemplated in this regard by other organizations globally must be considered as part of a broader open banking standards-setting body. Where it is not possible to arrive at consensus, the working groups should provide to government stakeholders the need for and recommended shape of their intervention. 

Underpinning all of this work, of course, is the need for lawmakers to grant consumers the legal right to leverage their own financial data through the financial provider of their choice. That right does not exist today, and its absence limits consumer choice in determining the products and services best suited to their individual financial situations. It also hinders competition, improved pricing and innovation.

Because consumers have no legal right to share their data, the system in the U.S. today for permissioning data between financial institutions and fintechs is cumbersome. The only tool available to share information is individual bilateral agreements between financial institutions, aggregators and fintechs. 

The Clearing House recently released a "model agreement" for these engagements, but its implication that every U.S. financial institution contract with every aggregator is, practically speaking, impossible to negotiate and execute. Even if this outcome were realistic, the individual terms between counterparties would likely differ from financial institution to financial institution and from aggregator to aggregator, leading to an unlevel playing field in which some consumers and small businesses are given more financial opportunity than others based on the provisions of a contract to which they have no visibility. Bilateral agreements, though perhaps a necessary tool over the short term in the absence of open banking standards, should not be considered a long-term solution to open banking.

It has been two years since the Consumer Financial Protection Bureau (CFPB) released its financial data sharing principles. Though industry has moved incrementally forward since then, it is time for U.S. policy makers to make the system more fair, and more transparent, and they must move quickly if they want their constituents to have the same access to financial technology tools that people in other countries do.