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The Fallout from Visa's U.S. Open Banking Retreat
Visa is reportedly pausing its open banking product in the U.S., highlighting new regulatory and financial complications surrounding data sharing.
"This highlights just how unsettled the space still is. Regulatory uncertainty and the possibility of higher fees could definitely slow adoption, especially for smaller players that can't afford compliance missteps," Chris Miller, senior director at Cornerstone Advisors, said. "That said, the underlying demand for open banking and embedded payments isn't going away; consumers and businesses both expect smoother, more integrated financial experiences."
Open banking enables third parties to access banking data, payments data, and other information with a customer's permission. Payment companies pursue open banking technology to enable real-time payments, account-to-account transfers, and embedded payments.
What Are the Rules?
Regulations in the U.S. are in flux. The Consumer Financial Protection Bureau is revamping the rule governing open banking, following an earlier move to scrap the original U.S. open banking rule, called 1033. The rewrite comes as JPMorganChase considers charging fees to the data aggregators enabling open banking technology.
Regulatory "assertiveness" in changing U.S. open banking rules has turned into ambiguity and enabled financial institutions to claim ownership of customer data and monetize access to it. This creates uncertainty that threatens to stall progress in embedded payments and broader open banking adoption, according to Enrico Camerinelli, strategic advisor at Datos Insights.
"The decision from Visa is directly connected to an unintended consequence of the U.S. regulation on open banking to loosen the regulatory requirements and give more freedom and flexibility to banks to run their business," Camerinelli remarked. "This has created a paradox where financial institutions claim ownership over their customers' data and demand to be paid to share this data."
U.S. vs. the World
Visa plans to continue its open banking service in other markets. Payment experts suggest Visa has more opportunity for open banking outside the U.S., regardless of American regulatory developments.
Uncertainty about regulation is likely part of the equation, but the decision to pull out of the U.S. is likely more about the market and Visa's presence, or lack thereof. "Visa hasn't made significant inroads in bank data access compared to its competitors," states Aaron Press, Research Director of Worldwide Payment Strategies at IDC.
Visa rival Mastercard offers open banking through its acquisition of data-aggregator Finicity. Mastercard recently added nine fintechs to its Start Path Open Banking and Embedded Finance accelerator program. Three are based in the U.S.: Link Money, Payitoff, and Quiltt.
Meanwhile, data aggregators like Plaid and MX have the largest share of the open banking technology business.
Visa's discontinuation of open banking in the U.S. is an "admission" that it wasn't gaining traction, according to Aaron McPherson, a principal at AFM Consulting. "I expect Visa to continue to support open banking applications in the U.S. through partners, rather than directly," he added.
Embedded Complications
Open banking can support embedded finance and payments by offering payments or financial services through third-party apps—a strategy banks and fintechs use to expand customer relationships.
Embedded payments are based on the premise that users give permission to use their data in return for accessing added services, Camerinelli explains. The challenge arises when banks charge for that data, potentially complicating the model.
While embedded payments and banking often result from open banking, they aren't necessarily reliant on it. "Virtually all payment systems can be and are being embedded in systems consumers, businesses, and banks use," said Eric Grover from Intrepid Ventures.
This article has been published in [AmericanBanker.com](https://www.americanbanker.com) via Yahoo News.
