Big banks choose fear-mongering over facts when it comes to fintech
The use of financial technology has reached mass adoption as consumers increasingly prefer cheaper, flexible and personalized digital financial services. Eight in ten US consumers used a fintech app to manage their money by 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 choose 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 gains for American consumers as a threat to their bottom lines. As a result, they choose fear-mongering over facts, and in the case of a recent open from the Consumer Bankers Association, they try to hide the benefits of digital financial services with misinformation and inaccuracies. Here is the truth.
Big banks have had a competitive advantage for over a century, but today consumers are driving a shift in the market and demand a system that works for them. Therefore, 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 pass national privacy legislation should be encouraged. Uniform national standards, rather than a patchwork of state privacy laws, will also be critical to satisfying 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. It includes laws governing fair lending, credit reporting, anti-money laundering, identity verification, electronic money transfers, and financial privacy laws such as the Gramm-Leach-Bliley Act. Fintech companies can also adopt the latest technology to fight fraud and count many banks as their clients to implement these cutting-edge practices.
Fintechs speak on behalf of consumers and design products with consumers’ rights and preferences in mind. Consumer privacy is a good 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 about how it is used, and be able to exercise their data rights without retaliation. Fintechs are outperforming traditional banks on consumer expectations, as 61 percent of US 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, as the major banks advocate, 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 large banks with large technology budgets want to put small institutions at a disadvantage. Consumers should be able to use their data to securely access financial tools, regardless of 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 market. Due to competition from financial technology companies, major banks have eliminated overdraft fees, leading investment firms have eliminated or lowered brokerage fees, and the 75 percent of Americans who make less than $100,000 are saving $360 a year in interest and bank fees because of fintech.
The CFPB’s 1033 Rule could have a far-reaching impact on consumers’ financial lives. Under the current system, account locking with legacy providers means consumers pay significant amounts in fees and don’t benefit from better deals. 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 rights to financial consumer data 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 Financial Technology Association.
