Personal financial management has evolved rapidly in the past few years. The user experience provided by financial technology companies quickly attracted people of every generation. It has become relatively common for consumers to take advantage of multiple apps to complement the offering of their traditional financial institution. 

Financial data managed by financial institutions is needed by third-party applications to enable popular use cases like personal financial management, digital payments and Buy Now, Pay Later (“BNPL”). It is not surprising that the wide adoption of third-party apps has led to the adoption of a financial data sharing framework known as Open Finance.  

Why Open Finance Matters to Consumers

Individuals consider their personal and financial data as highly valuable, requiring vigilant protection. It is important to understand that the benefits brought by being able to share personal financial data come at a price. The Open Finance framework is designed to guarantee that third-party applications can only access consumer data with informed consent, in a secure and reliable way.  

Open Finance is a Consumer-Centric Ecosystem

A healthy Open Finance ecosystem places consumers at the center of their financial universe. It allows anyone to manage the connection to their data in a direct manner, shifting the role from a passive spectator to active participant. It empowers consumers to make decisions about who can access their data and when.  

The entire system fosters innovation that everyone can benefit from.  New kinds of services and personalized solutions promote competition, allowing consumers to freely choose the best option for their unique situation. An example of Open Finance innovation is the ability to use an individual’s historical transaction data to assess the real lending options available to that person. The cash flow becomes a new source of credit decisioning, especially useful when credit history is not supplied.  

Consumer Rights and CFPB Proposed Rulemaking

At the heart of Open Finance lies the protection of consumer rights. The multifaceted concept of individuals owning their own data is protected by rules and best practices laid out by the Consumer Financial Protection Bureau (“CFPB”). These rules provide that consumer data should only be used for the benefit of the consumer and it’s up to the consumer to determine how their data is stored, processed, and transferred. The CFPB asserts that these decisions should only be made with full transparency and informed consent. Furthermore, consumers should be free to change their minds, so consent must be modifiable and revokable on demand. Akoya recently responded to the CFPB’s proposed rulemaking, providing a unique perspective and recommendations to further enhance consumer transparency and control.

See more on Akoya's consumer-centric mission.

Key Players in Open Finance

To effectively enable a secure, consumer-centric data sharing ecosystem, several entities need to be involved. Consumers stand at the center of this ecosystem, but financial institutions are the primary holders of financial data. They are responsible for making the data available using APIs, which are interfaces that act as digital bridges to allow third parties (e.g., fintech apps) to request and receive the data. 

Data access networks like Akoya play a vital role in making the data sharing process secure, reliable, and transparent between thousands of data providers and third-party apps. These networks streamline the data sharing process for the entire industry by working as intermediaries, connecting each entity to the rest of the ecosystem.  

The cooperation of so many different players has been made possible thanks to organizations like the Financial Data Exchange (“FDX”) and the CFPB. 

Understanding the Risks

Openness and data sharing also come with a fair share of risk. Handling financial data requires the utmost precaution to avoid data breaches. Any weakness throughout the chain could give rise to serious consequences such as fraud or unauthorized access to private information.  

Previously, the lack of a real Open Finance framework pushed some data aggregators to practice screen scraping. This method involves using a consumer’s financial account credentials (username and password) to access their financial data. Most fintech users have had their data scraped in the past and probably never realized. Screen scraping raises significant security concerns and often leads to inaccuracies in the data obtained. Safer ways to access and share consumer data exist, and that’s why Akoya is 100% API-only connections. Being involved in the data sharing process and becoming educated about the risks is the best way for consumers to protect their data. 

What's Next for Open Finance

Open Finance is revolutionizing the way consumer financial data is managed and shared. Its success relies heavily on informed and engaged consumers. A secure, transparent, and efficient data sharing framework is actively being built with the collective efforts of the whole industry to support the future of financial services in the United States. By understanding individual’s rights, the roles of the various players, and the potential risks, consumers can make better financial decisions while safely participating in Open Finance.