Banks are better positioned to adopt the Financial Data Exchange’s data sharing protocols than are fintechs, giving banks an edge in implementing open banking framework. 

The Consumer Financial Protection Bureau on Jan. 8 appointed Financial Data Exchange (FDX) as the standard data-sharing body for open banking. FDX is an API-driven data sharing platform founded by major banks, including Bank of America, Citi and JPMorgan.

The appointment is “going to be good for banks, bad for fintechs,” Jim McCarthy, a founding member of the CFPB and chairman at financial advisory group McCarthyHatch, told Bank Automation News. “The fintech industry has matured on screen scraping, and so investments were made into products and services that are hinging on that technology.” 

Banks, on the other hand, have been investing in APIs for years and will more easily be able to adopt the FDX’s standards, McCarthy said, adding that many fintechs must make investments into APIs to adhere to the standards, which would add costs to their business models. 

The CFPB has urged FDX to remain neutral while developing standards for the industry, according to its Jan. 8 release. 

“Establishing standards allows the industry to innovate more efficiently and safely,” Steve Smith, a co-founder and board co-chair of FDX, told BAN.  

“Both data providers and recipients will greatly benefit from the interoperability of this recognized standard,”  added Smith, who is also a founder and chairman of consulting and philanthropic organization the Stena Foundation.  

Acceptance into the FDX consortium is exclusive in the sense that existing members decide who joins, and this could create problems as the group is developing standards for the entire industry, McCarthy said. The CFPB has mandated that FDX provide transparency in the standards development process going forward, he added. 

FDX’s commitment to provide safe data-sharing protocols will help it work with the entire industry to make the best out of open banking framework, Smith said, adding that the organization will pay close attention to what benefits consumers and businesses. 

Multi-standard ecosystem 

The CFPB appointed the FDX as the standard setting body for five years and most probably will add other standard setting bodies, McCarthy said. 

“Even though FDX is the first approval and we’re starting with the banking industry, I think that we will see additional needs for additional standards and additional industries like insurance and blockchain,” McCarthy said. 

FDX has successfully partnered with other standard-setting organizations in the financial services industry that have the specific expertise and capabilities needed to create a safe data sharing platform for open banking, Smith said. 

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