The financial industry has suffered immensely – with many bank branches being closed, many promising startups having to shut down as they could not receive the funding they needed due to investors being hesitant to put their money towards an uncertain venture when the economy was falling apart and more. In the hope of bringing about more job security and healthy competition, President Joe Biden announced the Executive Order on the 9th of July.
The Order includes 72 initiatives by more than a dozen federal agencies to promptly tackle some of the most pressing competition problems across the American economy. The gist of the Order’s initiatives are:
Make it easier to change jobs and help raise wages by banning or limiting non-compete agreements and unnecessary, cumbersome occupational licensing requirements that impede economic mobility.
Save Americans money on their internet bills by banning excessive early termination fees, requiring clear disclosure of plan costs to facilitate comparison shopping, and ending landlord exclusivity arrangements that stick tenants with only a single internet option.
Make it easier for people to get refunds from airlines and to comparison shop for flights by requiring clear upfront disclosure of add-on fees.
Make it easier and cheaper to switch banks by requiring banks to allow customers to take their financial transaction data with them to a competitor.
Increase opportunities for small businesses by directing all federal agencies to promote greater competition through their procurement and spending decisions.
The Problem
There is not one isolated area that the Order will look to tackle – it is looking to help the economy as a whole. The main problem from the official announcement was that inadequate competition holds back economic growth. When there are only a few employers in town, workers have less opportunity to bargain for a higher wage and to demand dignity and respect in the workplace with research suggesting that industry consolidation has driven down wages by 17%.
In over 75% of US industries, a smaller number of large companies now control more of the business than they did twenty years ago, meaning more of the market, mark-ups (charges over cost) have tripled, with the lack of competition driving up prices for consumers.
When looking at the fintech space and banking, one must look at the context the pandemic has had, whilst also looking back further. With more and more banks having closed down, especially during the turbulent times of the past year, Biden has encouraged banking agencies to update guidelines on banking mergers to provide more robust scrutiny of mergers, and stop monopolisation.
With banking data being hard to transfer, the president has acknowledged open banking, and encouraged the Consumer Financial Protection Bureau (CFPB) to issue rules allowing customers to download their banking data and take it with them. The aim of this will be to drive down the expenses consumers must pay when moving bank.
How This Affects the Fintech Space
Experts across the industry have contributed to discuss how the Order will impact fintechs in North America:
Siamac Rezaiezadeh, Director of Product Marketing at GoCardless, said:
“This is the first step along the path to a truly competitive, open banking ecosystem in the US. The government has now recognised 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.
“What this Executive 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.”
Eyal Sivan, Head of Open Banking at Axway, an open and global API management platform said:
“With the signing of his executive order, the White House has taken a bold step towards bringing open banking to the US. Although the executive order aims to promote competition across a broad range of sectors, financial services is definitely on the list, with a specific nod to data portability and ownership. According to the fact sheet linked below, the order specifically states customers should be able to easily take their financial transaction history data to a new bank and that it encourages the Consumer Financial Protection Bureau (CFPB) to issue rules allowing customers to download their banking data and take it with them… Sure sounds a lot like open banking.”
Dima Kats, CEO at Clear Junction said:
“Paper-based banking is disappearing at a rapid pace in favour of data-heavy digital banking. User experience is at the root of this shift. Fintechs can improve user experience, but they need data. By making the data modern open banking relies upon more accessible, Biden’s Executive Order will help fintech organisations integrate seamlessly with banks and other financial organisations’ platforms. So, as more businesses and consumers embrace open banking, the regulation change will help fintechs form partnerships with neobanks looking to compete with market giants and the incumbent banks looking to fend off the challengers.”
Jane Barratt, Chief Advocacy Officer at MX acknowledged how this would affect consumers and the industry:
“For Consumers: Implementing these imperatives will give consumers confidence that the data they want to share is complete, transportable, secure, and that in the event of a breach or other loss, they will be protected. This will give them safe and reliable access to a broad range of financial services applications that will empower their financial futures.
“For the Industry: there are enormous benefits to the whole ecosystem – including increased security, decreased risk and a fundamental shift to the creation of new revenue opportunities from API based services, like Banking As A Service (BAAS). The transparency provided with secure data sharing means that institutions of all sizes will have insights into the business impacts of their customers’ data sharing activities – and be able to better expand services to suit. In turn, sparking new companies to emerge and compete and bringing further optionality to the consumer for their financial decisions.”
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