The Consumer Financial Protection Bureau (CFPB) granted the Financial Data Exchange (FDX) the authority to enforce open banking standardization rules, reshaping the future of data exchange in 2025
The FDX Open Banking Rule will require companies like banks, fintechs, and data access platforms to comply with or develop interfaces allowing consumer-authorized financial data sharing. By facilitating this data sharing, FDX aims to enhance competition and drive innovation in financial services, giving consumers more choices and improved control over their financial information. Under the FDX rule, customers can exchange their financial data with third parties securely and free of charge.
Kevin Feltes, Chief Executive Officer of FDX, explains, “This recognition provides helpful clarity to the market at a critical time. Many firms are running fast to come into compliance with the CFPB’s recent Open Banking regulation and give customers more control over their financial data. The recognition underscores FDX’s position as a leading forum for companies and nonprofits from across the financial ecosystem to collaborate on interoperable methods for secure, consumer-permissioned data sharing.”
What is Data Exchange?
Data Exchange is the transmission of data between two entities. Financial data reflects a company or entity’s economic health performance, encompassing income, expenses, assets, liabilities, and cash flow details. This data may be historical or current and is typically reported periodically or during financial transactions. Financial data is crucial in guiding decisions related to pricing, investments, and other strategic initiatives.
While financial data exchange offers convenience and financial flexibility, it also introduces significant fraud risks if not adequately secured. Malicious actors or fraudsters can exploit these exchanges to access sensitive information from multiple sources. This allows them to identify potential victims, monitor financial activities, steal identities, take over accounts, or conduct unauthorized transactions. These risks become more threatening when using systems like Open Banking, where data from multiple financial institutions is aggregated in one place. Financial data exchanges can leave individuals and businesses vulnerable to substantial economic and reputational damage without stringent security measures and proper controls. However, adequate fraud prevention can diminish those risks.
The CFPB Open Banking Rule
In October 2024, the CFPB introduced the Personal Financial Data Rights rule, which mandates that financial institutions provide consumers free access to their financial data and the ability to transfer it to third-party providers upon request. As the first standard-sharing body recognized by the CFPB, the FDX has developed guidelines for secure and efficient data sharing.
The CFPB’s recognition of FDX as a standard-setting body is valid for five years, subject to the following conditions:
Pay-to-Play Rule: FDX must refrain from entering agreements that could give certain companies an unfair advantage. The approval order mandates that FDX create standards for open banking free from the influence of sponsorships or financial incentives that could provide market participants with privileged information or an unfair advantage. FDX must ensure that the organization and its staff are not involved in any agreements, arrangements, or pay-to-play rules that could distort their financial incentives in favor of particular players within the industry.
Open Banking Reporting: FDX is required to monitor and report on the usage of its standards and provide public tools to help companies demonstrate their compliance. The FDX must report to the CFPB on the market adoption of its consensus standards and/or maintain a publicly accessible resource where companies can disclose their use of the standards and any compliance certifications. This is intended to benefit open banking participants, regulators, and the general public.
Clarity: FDX must make its standards freely available to all, ensuring equal access for members and non-members.
FDX Open Banking Rules
Under the new Open Banking Standards, consumers can move their financial data between banks or service providers without incurring fees, simplifying switching to better options. The rule enhances privacy by guaranteeing that shared data is used solely for the specific services the consumer has authorized, preventing misuse for purposes like advertising.
It also introduces a straightforward revocation process, allowing consumers to revoke access to their data swiftly. Once access is withdrawn, the rule ensures data sharing stops immediately, with data being deleted by default unless reauthorized within a year.
The rule will be rolled out gradually. Larger institutions are required to comply by 2026, while smaller institutions have until 2030 to adopt the changes.
The FDX Open Banking Pushback
The CFPB’s full powers and structure are still up for debate. Until it is resolved, however, the largest financial institutions (FIs) must comply with the new rule within six months of its final publication. Smaller FIs, depending on their asset size, will have between one and two years to comply. The smallest FIs, with assets under $850 million, will have up to four years to meet the requirement.
The CFPB addressed the pushback with the statement: “Several industry commenters disputed the Bureau’s legal authority to recognize standard-setting bodies that would then issue consensus standards for purposes of facilitating the implementation of a final Personal Financial Data Rights rule. In response, the CFPB notes that, as discussed above in this final rule, establishing a framework for standard setting is authorized by CFPA section 1033(a),”
How Open Banking Accounts Affect Data-Sharing Businesses
Open Banking offers both opportunities and challenges for businesses that offer data-sharing accessibility. While it enhances financial transparency and provides easier access to financial data, it also brings risks that these businesses need to consider.
Benefits of Open Banking | Drawbacks to Open Banking |
Streamlines Onboarding: Acquiring new customers can challenge merchants, and Open Banking simplifies this process. The system allows customers to easily access and engage with products, creating a seamless and positive experience. A streamlined onboarding process enhances customer retention and helps merchants attract more customers. Easy Money Transfer/ Payments: Open Banking revolutionizes online payments by enabling customers to pay directly from their bank accounts. This not only speeds up transactions but also reduces issues like chargebacks. For high-risk merchants, this offers a safer and more efficient payment method, helping build customer trust. Financial Aggregators: Open banking eliminates the need for intermediaries like credit card companies, resulting in lower fees and less complexity with changing regulations. Financial aggregators can help businesses streamline transactions, offering a more efficient payment process with fewer hurdles, making payments smoother, and reducing potential challenges.
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Data Protection: Open Banking provides valuable benefits but requires a strong commitment to protecting customer data. High-risk merchants should take proactive measures to address online threats. Collaborating with a skilled payment processor is crucial to ensuring the highest level of security and preserving data integrity. Strict Regulations: Open banking can be challenging for high-risk businesses because e-commerce merchants already face a complex set of rules regarding payments. Introducing open banking adds additional compliance requirements, making it even more crucial to stay on top of regulations. Partnering with an experienced payment processor becomes essential for navigating these complexities. A reliable processor helps businesses stay informed and ensure compliance, allowing them to manage the evolving regulatory landscape more effectively. Finding a Reliable Merchant Service Provider: Open banking requires merchants to collaborate with experienced payment processors. These merchants must choose service providers knowledgeable about open banking and understand their industry’s unique challenges and requirements. A strong partnership with a trusted merchant service provider ensures that businesses can navigate potential issues effectively, maximize the benefits of open banking, and maintain smooth, secure transactions. |
Final Words
Open banking offers substantial opportunities for merchants who require data sharing or extra security, but realizing its full potential requires careful navigation of its complexities. Businesses that share customer data must take a strategic approach to leverage open banking, focusing on key areas such as in-depth research, maintaining a strong commitment to data security, and forming strong partnerships with experienced merchant service providers to prevent fraud and other cyber attacks.
By partnering with a reliable merchant service provider, merchants can streamline payment processes, reduce transaction costs, and confidently navigate the regulatory landscape. This partnership helps ensure the business stays compliant with industry standards, minimizing the risk of penalties or reputational damage.