The use of financial technology has reached mass adoption as consumers increasingly prefer lower-cost, flexible, and personalized digital financial services. Eight in ten American consumers used a fintech app to manage their money in 2022, with nine in ten consumers (93 percent) saying they benefit from using digital tools, according to a recent survey by The Harris Poll. Consumers are choosing new technology because it saves them time (93 percent) and money (78 percent), helps them make better financial decisions (73 percent), and reduces financial stress (71 percent).
However, the nation’s largest banks see these wins for American consumers as a threat to their bottom line. As a result, they are choosing fear-mongering over facts and, in the case of a recent oped from the Consumer Bankers Association, trying to obscure the benefits of digital financial services with misinformation and inaccuracies. Here’s the truth.
Big banks have enjoyed a competitive advantage for over a century, but today, consumers are driving a shift in the market and demanding a system that works for them. That’s why we need to modernize data access and privacy rules for both fintechs and banks. The Consumer Financial Protection Bureau’s (CFPB) Section 1033 rulemaking to establish strong financial data rights is an excellent start, and federal efforts to enact national data privacy legislation should be encouraged. Uniform national standards, rather than a patchwork of state privacy laws, will also be critical to satisfy consumer needs and expectations in our increasingly digital world.
The fintech industry is subject to the same robust consumer financial protection standards as other financial services. That includes statutes governing fair lending, credit reporting, anti-money laundering, identity verification, electronic fund transfers, and financial privacy laws like the Gramm-Leach-Bliley Act. Fintech companies can also deploy the latest technologies to combat fraud and count many banks as their customers to implement these cutting-edge practices.
Fintechs advocate on behalf of consumers and design products with consumers’ rights and preferences in mind. Consumer privacy is a great example. As articulated in recent privacy principles for the future of finance, consumers are entitled to high levels of data stewardship from companies when sharing their personal financial information. They should control the data they share, receive clear information on how it is used, and be able to exercise their data rights without retaliation. Fintechs outpace traditional banks on consumers’ expectations, as 61 percent of American consumers agree that when they use fintech applications, they have more control over their financial information than with banks.
The fintech industry has long led the way in embracing modern, secure technologies to allow consumers to access and share their financial information with another provider. At the same time, if the transition to new technology is forced too quickly, which the largest banks are advocating, millions of Americans who use local banks and credit unions will lose access to valuable tools they rely on to manage their finances. We recognize the need for a responsible, realistic timeline for financial institutions to transition their technology. But big banks with big tech budgets want to put small institutions at a disadvantage. Consumers should be able to use their data to securely access financial tools, no matter where they bank or how they manage their money.
Today, tens of millions of Americans not only use digital tools to bank, budget, spend, and invest but also benefit from a healthier consumer marketplace. Because of competition from financial technology companies, major banks have eliminated overdraft fees, leading investment firms have removed or lowered brokerage fees, and the 75 percent of Americans earning less than $100,000 save $360 a year in interest and bank fees because of fintech.
The CFPB’s 1033 rule could have a sweeping impact on consumers’ financial lives. Under the current system, account lock-in with legacy providers means that consumers pay considerable amounts in fees and don’t take advantage of better offers. According to a recent Wall Street Journal analysis, consumers could have earned an additional $291 billion in interest since 2019 by switching banks. Consumers should be able to choose where they bank, invest, budget, and send money.
Strong consumer financial data rights will unlock even more competition and consumer choice, a sign of a healthy financial market. Ultimately, consumers and small business owners should be empowered to take control of their financial information, not let others dictate the terms for them.
Penny Lee is President and CEO of the Financial Technology Association.