The biggest risk today isn’t the immediate collapse of the current system, but a freeze on the future of innovation. About 50% of American retirement wealth is tied up in 401(k)s. A lack of regulatory certainty raises questions around whether consumers can continue to permission their data, and that ultimately translates into less consumer choice and product competition.
Open banking and the freedoms it afforded Americans to move between financial institutions and control their financial data, may be a thing of the past. The Consumer Financial Protection Bureau is trying to roll back its Section 1033 Open Banking Rule, a move now facing court challenges. If successful, the regulations that underpinned the financial ecosystem would be replaced with a vacuum. The real collateral damage wouldn’t just be convenience—it could be the future of American retirement wealth.
We spoke with Sima Gandhi, president of Alton Strategies and senior advisor at FS Vector, where she co-founded CFES. As an early executive at fintech giant Plaid and a former policy advisor at the U.S. Treasury, she has been at the center of the open banking debate for nearly a decade and understands what is at stake for American finances.
Beyond the budget app: "The biggest risk today isn’t the immediate collapse of the current system, but a freeze on the future of innovation," says Gandhi. The real loss, she explains, will be felt most acutely where innovation is still in early days, and the stakes are high. "About 50% of American retirement wealth is tied up in 401(k)s. A lack of regulatory certainty raises questions around whether consumers can continue to permission their data, and that ultimately translates into less consumer choice and product competition."
We are seeing state regulators step up to the mantle. For consumers eager to be involved, that's the area to engage. The states have really shown over the last few months that they're up for the challenge, and I'm eager to see folks start engaging with their state regulators to advocate for the need to protect consumer choice and enable competitive markets.
Death by mediocrity: In this regulatory vacuum, incumbents get the upper hand. The danger, Gandhi warns, isn't a dramatic shutdown of popular apps, but a lack of commitment to investing in the infrastructure needed. "My fear is that 'open banking' becomes a branding exercise. A financial institution may say, 'Oh yes, we have APIs,' but its investment in keeping that infrastructure reliable simply goes down."
A new battleground: With the feds in retreat, Gandhi says the fight for consumer financial choice is moving to a new, more accessible battleground: the states. "We are seeing state regulators step up to the mantle. For consumers eager to be involved, that's the area to engage," she explains. She says the key is for consumers to frame the issue correctly with their representatives. "The states have really shown over the last few months that they're up for the challenge, and I'm eager to see folks start engaging with their state regulators to advocate for the need to protect consumer choice and enable competitive markets."
