Aggregation Wars, Part 4: Europe

Across the pond, EU regulators are building a secure consumer-oriented financial ecosystem. To stay relevant as a global innovator, regulators in the United States act fast in doing the same.

Last January, European regulators passed the PSD2 law, which grants ownership of account data to the bank customer rather than the bank. Under PSD2, financial institutions will be required to provide free access to their customers’ accounts to any third party that the customer authorizes.

The Customer is Always Right

Consumers win under PSD2, because it encourages competition in the digital financial product space. Instead of being forced to use their banks’ clunky services, Europeans can sign up for any sleek new service, then authorize it to connect to their bank. This new and open market has tech companies building products that are better functioning, customizable, and more mobile-friendly than the existing products offered by banks.

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PSD2 in GIF format, source: Medium

Smarter, Simpler Regulations

In the United States, regulators are still years behind their European counterparts. The challenge lies in crafting laws that remain relevant as the technology evolves over time. To avoid over-regulating the industry and creating never-ending work for themselves, US regulators should build a framework of principles and “best practices” for the industry. Without micromanaging the details, they must foster:

  • Ease of Connectivity: the adoption of a universal financial “language” that makes it easy for banks, customers, and fintech companies to share data using the same protocol
  • Safety: Security standards that prevent unauthorized parties from accessing customer data
  • Consumer Protection: Acceptable use of customer information and disclosures

Acting Fast

It is time regulators take a stance in this debate with simple, forward-facing legislation. If Silicon Valley and New York are to remain competitive as fintech hubs, they need legislation that remains relevant as the fintech sector continues to evolve.

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