January 31, 2022
Plaid’s 2022 Trans-Atlantic Policy Projections
John C. Pitts, Ben White, Kat Cloud, Martijn Bos, & Katie Neal
Fintech has continued to change the lives of consumers around the world. In 2021, we saw fintech reach mass adoption. The percentage of U.S. consumers using technology to manage their finances jumped 30% year-over-year, from 58% to 88%. These numbers mean more people use more fintech tools than video streaming services (78%) and social media (72%). This places fintech among the most widely adopted consumer technologies outside of the internet (93%). With all of that happening, what can we expect for 2022?
We believe those numbers will only continue to grow. Consumers are not going back to fax machines and wet signatures. And with so many now relying on technology to manage their finances we can expect increased interest from regulators as they look to update the rules of the road for those technologies, and the expectations consumers have when they use them. It is no secret that policymaker action often lags consumer adoption. What is often unclear is what those regulatory interventions will look like once they do get rolling. I’ve got some predictions, which I break down below.
United States 🇺🇸
Prediction: Policymakers move ahead with plans for improving competition in the financial services sector.
The United States has a host of open issues when it comes to tackling fintech regulation. Today, fintech companies are subject to licensing, supervision, and enforcement by state, local, and federal regulators - yet many questions remain. How will the Securities and Exchange Commission’s (SEC) definition of digital assets impact crypto offerings? How will the Consumer Financial Protection Bureau’s (CFPB) rulemaking on Dodd-Frank 1033 envision an Open Banking regime? Will the Office of Comptroller of the Currency (OCC) be able to offer fintechs a consistent path to bank charters? This year, we will see firm enough answers to these questions that businesses and consumers will be able to make long-term decisions with confidence in how these crucial issues will be resolved.
One policy goal has broad buy-in from Congress, regulators, and the Administration alike: reducing entrenched market forces and promoting greater competition in financial services. Congress recently held a hearing entitled “The Future of Banking: How Consolidation, Nonbank Competition, and Technology are Reshaping the Banking System.” In July, as part of a broad push to promote competition in the American economy, President Biden directed the CFPB to move forward with rulemaking under section 1033 of the Dodd-Frank Act to facilitate the portability of consumer financial data so consumers can more easily switch financial institutions and use new, innovative financial products. The CFPB itself recently issued a new strategic plan with the first goal centred around ensuring consumers have access to fair, transparent and competitive markets.
It’s clear that policymakers view this as a crucial issue to help improve consumer financial outcomes and choices. The writing’s on the wall - 2022 is ripe for decisive policy on helping ensure fair competition among all financial players. An open banking rulemaking through Dodd-Frank 1033 certainly seems like the vehicle to bring us this sea change - expect the CFPB to release an outline as a first step as part of a Small Business Review panel sometime this year.
Prediction: Open banking tracks for a 2023 launch.
It’s been a long ride in Canada as fintech awaits open banking, but there’s light at the end of the tunnel. With a new real-time payments rail coming, and potential privacy overhaul that would give consumers rights to their data, the pressure is on for Canada’s government to put its open banking plans into action. Last year the Department of Finance produced a comprehensive open banking proposal and roadmap after consultations from banks, credit unions, and fintech companies. Following a surprise election last Fall, Canada’s re-elected Prime Minister charged the government with standing up an open banking system by 2023.
A global “fast follower,” Canada’s open banking proposal adapts – but doesn’t copy – from its peers like the UK and Australia. It prescribes central oversight with an Open Banking Lead (or czar, if you’re nostalgic for Anastasia), and an accreditation requirement for all participants. But it diverges in two important ways: first is a broader data scope than the UK, including “all online banking data,” not just payments; second is its approach to technology standards – seeing market-driven technology work in the U.S. and Singapore, the government is happy to leave technology to the market. Once the Open Banking lead is named, expect the plan to be set in motion.
United Kingdom 🇬🇧
Prediction: Open banking creates a shift in traditional payment methods for UK consumers.
This year marks the fifth year since open banking was first introduced: no one could have imagined the amount of innovation we have seen over the last four years. Over 4 million UK consumers and businesses are actively using and benefiting from open banking. But there is still room for innovation, and 2022 will be the year we see that happen.
For the first time since credit cards were introduced, Variable Recurring Payments (VRP) give consumers an alternative payment method they can use when checking out online. VRPs will use the Faster Payments Scheme, meaning merchants will be able to benefit from the same-day settlement of funds. This influx of cash could have a dramatic effect on businesses, particularly as they recover from the economic impact of the pandemic. More options, more cash and more innovation means 2022 will see a paradigm shift in the way consumers and businesses make payments.
One way to continue this paradigm shift is to expand access to more accounts, as we have seen in Canada, Australia and the U.S. In the UK, we see this happening through Smart Data, legislation that will give consumers the right to port their data. Given the rise in consumer demand, we can see HM Government finally introducing regulations. Once consumers have the right to port their data there is no telling what kinds of paradigm shifts will occur.
European Union 🇪🇺
Prediction: The European Commission mandates adherence to the SEPA instant payments scheme.
In 2022, the European Union continues full steam ahead on the digital finance package and the retail payments strategy. Amongst passing legislation to streamline data flows and the roles of data intermediaries, the European Commission will also examine two emerging policy areas: the review of the revised payments services directive (PSD2) and the pan European application of the SEPA SCT Inst. scheme, otherwise known as instant payments. The PSD2 review was broken into two components - a preliminary academic review, which is currently ongoing, and a later legislative review. Through our participation in the early stages of the academic review, Plaid substantiated the need for a longer re-consent model, a more stable and official role for licensed third party providers within the ecosystem, and a more proportionate and risk-based AML/TM approach for providers of services like Account Information Services and Payment Initiation Services - and expect the next iteration of legislation to reflect this market feedback.
Also on the docket is the potential mandatory participation in the SEPA SCT. Inst. payment scheme by banks in the EU. Participants to that scheme can facilitate instant bank-to-bank payments with a maximum delay of 10 seconds. There is growing interest and support in making sure banks participate in this scheme as instant payment functionalities not only benefit economic traffic but also ensure that alternative payment modalities like Payment Initiation Services remain fit for purpose and a convenient tool for consumers. Plaid has already voiced its support for mandatory adherence - and a favourable commission announcement is expected by Q3 2022.
There is no doubt that we will see some systemic changes to the fintech ecosystem during 2022. Speak to the team to find out how we work with firms to provide connectivity around the world.