FU | January 28 – February 3, 2017

Leading Off

President Trump’s promise to overhaul Dodd-Frank raised concerns among fintech firms about access to consumer data; SoFi acquired payments and mobile-banking startup Zenbanx; AmEx became the newest member of the Linux Foundation’s Hyperledger blockchain project; H&R Block will use IBM’s Watson technology to help file an estimated 11 million returns this tax season; and Green Dot acquired RushCard, which was also fined by the CFPB for failures related to frozen accounts in Oct. 2015.

The Big Idea

There’s a fight brewing over access to your financial data.

The story:  Today, President Trump signed a new executive order to begin dismantling the Dodd-Frank Act, passed in 2010 as a response to the 2008 financial crisis. The EO calls into question the Act’s future, including Section 1033, which requires banks to provide customers with data about their accounts and transactions, upon request, “in an electronic form that can be used by computer applications.” Fintech firms have cited Section 1033 as the measure that ensures their ability to access the bank data of their users, and many worry that losing such access would harm their businesses. Meanwhile, in the past two weeks, Intuit has signed deals with both JPMorgan and Wells Fargo that will allow for the transfer and sharing of customer data between it and the banks via application program interfaces (API).

Why we care:  Many consider data to be the “natural resource” of the current technological age; and, as with any resource, there is increasing competition to control it. User data is incredibly valuable to a variety of firms, from banks to mobile ad-makers, which use vast amounts of aggregated information to design tailored products and services. Repealing Section 1033 could allow banks to stanch the flow of customer financial data — the lifeblood of many fintech businesses — to upstart competitors. This threat is significant enough that several fintech firms last week launched the Consumer Financial Data Rights group to lobby for Section 1033 and consumer access to data. Meanwhile, banks themselves are establishing new connections to third-party financial services, as demonstrated by the recent deals with Intuit. The combination of regulatory changes and technological adaptation may help big banks convince customers to abandon their collection of apps and return to the monolithic, pre-fintech status quo.

What we think:  
First, some caveats: Even if Congress takes a hatchet to Dodd-Frank, there’s no guarantee that it would touch Section 1033. And even if it did, repealing the provision would neither prevent customers from accessing their own data nor preclude fintech firms from potentially accessing it in other ways. However, we tend to agree that this is a cause for concern.

Most immediately, eliminating Section 1033 could tilt the playing field in favor of banks, which already have vast amounts of customer financial data and little reason to share. It may be true that “handing over online banking passwords to third parties is risky, and that outside services constantly pulling data from bank servers is a technological burden,” but that hasn’t prevented some of the largest banks (e.g., JP Morgan) from signing their own deals with third-parties and using APIs to create customer gateways between platforms. Moreover, banks would stand to benefit from a regulatory change; Section 1033 protections have essentially forced them to make it easy for fintech firms to gather customer data and fine-tune competing products. While it’s possible that customers could choose to leave their banks should they obstruct the sharing of information to third-parties, it seems unlikely.

Looking down the road, there’s also the concern that this is the first step in a move to limit customers’ rights to their own data. Consumers that ask their banks to share data with third-parties expect it to be done efficiently and to the extent requested, facilitating the smooth flow of their financial lives. If banks are no longer required to share data with third-parties in an easily accessible way, it may prevent fintech firms from offering a valuable product and, in turn, dissuade customers from using those services. Potentially, both the third-party and the customer suffers. If we assume that consumers alone should be allowed to determine how, when, and with whom their financial data is shared, repealing Section 1033 may present banks with an opportunity to influence the financial decisions of their customers and presage a larger battle over the extent to which their control of customer data is acceptable.

In Other News…

SoFi acquires Zenbanx.  The online lender purchased the Wilmington, Delaware-based mobile-banking startup, founded by former ING Direct CEO Arkadi Kuhlmann, for $100 million. “With Zenbanx . . . [we’re] adding SoFi deposit, money transfer, and credit card products to our offerings,” said CEO Mike Cagney.

ING carrying out nearly 30 blockchain experiments.  The Dutch bank said it has conducted 27 proofs of concept of blockchain-enabled programs across “six business areas, including payments, trade finance and working capital solutions, financial markets, bank treasury, lending, and compliance and identity.”

AmEx joins Hyperledger.  The credit card giant joined the Linux Foundation’s blockchain project as a “contributing member.” AmEx’s chief information officer said Hyperledger will help deliver “innovative products . . . while transforming existing business processes and applications.”

Betterment adds human option.  The pioneering robo-advisory firm became the latest to offer “hybrid services” pairing algorithm-generated advice with human help. Betterment is offering users the option to supplement its service with a human advisor “for an additional annual fee of 0.15% to 0.25% of assets.”

IBM brings AI to tax returns.  Tax advisory firm H&R Block will use IBM’s Watson technology to help it file the taxes of an estimated 11 million people this year. H&R Block employees trained Watson using data from over six decades of filings and nearly 74,000 pages of the federal tax code.

RushCard acquired, fined.  Green Dot purchased RushCard, an online, direct-to-consumer, reloadable prepaid card provider. The CFPB also fined RushCard and its payments processor, MasterCard, for failures that left thousands of customers unable to access funds in October 2015.

The Federal Reserve’s fintech-focused Outlook.  This edition of the Fed’s Consumer Compliance Outlook (the third issue of 2016) focuses on how Fed officials think regulators and bankers should approach financial innovation. The issue includes interviews with Governor Lael Brainard and the late Teresa Curran, former head of supervision in the Fed’s San Francisco office.

Have a great weekend!
Joe Oehmke and Austin Tuell

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