3 Fintech News Stories
#1: Open Banking Is In Danger
What happened?
The CFPB is expected to make some significant changes to the Personal Financial Data Rights Rule, which had been finalized by Rohit Chopra late last year:
The Trump administration is poised to reopen a Biden-era rule allowing customers to share their sensitive bank data with third-party fintechs and potentially vacate it, according to multiple sources.
The Consumer Financial Protection Bureau is leaning toward reworking its open banking rule, which allows customers to share their deposit account and credit card information with fintechs, such as online investment company Betterment or PayPal Holdings Inc.’s Venmo service, the sources told Bloomberg Law.
It’s unclear whether the administration will look to add to the existing rule or eliminate it altogether, but supporters of the regulation are worried about any further delays to its implementation.
So what?
The precipitating event here is the lawsuit from the Bank Policy Institute (BPI), which was filed about 5 minutes after the CFPB finalized the open banking rule in October. The CFPB, under Acting Director Russell Vought, asked the court for a stay so that the bureau could review the rule and negotiate with the big banks.
There are two possibilities for what happens next.
The CFPB could choose to revise the existing rule in accordance with the Administrative Procedure Act (APA). This would give everyone the opportunity to weigh in on the portions of the rule that they are unhappy with. Banks would likely focus their lobbying on being allowed to charge for the data and getting clear rules on liability and more control over risk management. Fintech companies and data aggregators would push for looser restrictions on secondary data use and the inclusion of more account types as covered data under the rule. The biggest fight would likely be over the inclusion of payment initiation within the scope of the rule, which JPMorgan Chase hates and Plaid and Stripe really like.
When the CFPB and the banks asked the court for a stay in the BPI lawsuit, I figured this was the path we would be headed down. And it still might be.
But there’s a second, much more concerning path that is also on the table. The CFPB could choose to rescind the rule entirely and then start the rulemaking process over from scratch.
According to the sources I’ve spoken with, rescission is a distinct possibility. The CFPB is currently operating at a significantly reduced capacity (thanks to the efforts of Acting Director Vought), and given the pressure from a few big banks, there’s a feeling that it might be easier to just scrap the rule entirely, rather than attempting to rework it.
If the CFPB were to go down this path, it would essentially be resetting the open banking timeline back 5-7 years (to when the CFPB first started working on the open banking rule). This would potentially embolden banks to be more aggressive in blocking access for data aggregators (a tactic that was much more common back then) and create a more fractured and unreliable experience for consumers.
And there’s no guarantee that a new rule would be finalized in the same 5-7 year timeframe it took the CFPB the first time around. While much of the groundwork has already been laid (which is helpful), the CFPB is currently operating with a fraction of the number of employees it had been operating with under President Biden. Even if Acting Director Vought’s RIF is undone by the courts, there is still a 70% cut in the bureau’s operating budget that is working its way through Congress. With that reduction in capacity, who knows when a new open banking rule would be finalized, if ever.
Finally, it’s worth noting that if the CFPB decides to rescind the rule, it will need to come up with the legal grounds to do so. Fortunately (or unfortunately, depending on how you look at it), the BPI has already laid out the legal argument that the Biden-era CFPB overstepped its authority in creating the rule. Part of that argument, if you can believe it, is that the Dodd-Frank Act was meant to give consumers the right to access their own data, not third parties acting on consumers’ behalf. Here’s the relevant section of the BPI lawsuit:
First and most fundamentally, the Bureau exceeded its statutory authority by requiring banks to broadly provide their customers’ financial information to purportedly “authorized” third parties like fintech companies and data aggregators. The Bureau issued the Rule pursuant to Section 1033 of the Dodd-Frank Act, which requires banks to “make available to a consumer, upon request, information in the control or possession of the [bank] concerning the consumer financial product or service that the consumer obtained” from the bank. 12 U.S.C. § 5533(a) (emphases added). … And although the Act generally defines “consumer” to include “an agent, trustee, or representative acting on behalf of an individual,” 12 U.S.C. § 5481(4), the Rule requires data providers to share consumer information with thousands of commercial entities that plainly do not qualify as agents, trustees, or representatives of those consumers. In short, nothing in Section 1033 authorizes the Bureau to dictate terms on which banks must furnish consumers’ data to innumerable, as-yet-unidentified third parties—with unknown credentials or security protocols—that are far less regulated than banks, pose potentially novel risks, and have no special relationship with the consumer who requests the data.
That’s quite an argument to make! Fintech companies have “no special relationship with the consumer” and therefore cannot act as an agent on their behalf?!?
Imagine if, in choosing to rescind the Personal Financial Data Rights Rule, the CFPB agreed with the BPI that the entire premise upon which open banking is built (i.e., consumer authorization for third-party data access) is wrong, as a matter of law.
I don’t know how likely a complete rescission of the rule is, but even the chance of it should be enough of a reason for every fintech CEO in the U.S. to call their congressional representatives.
#2: Stablecoin Concerns
What happened?
The bipartisan GENIUS Act, which would create a regulatory framework for stablecoins in the U.S., is suddenly in jeopardy:
A group of pro-crypto Senate Democrats said Saturday they would oppose GOP-led stablecoin legislation that some of them previously supported if it goes to the floor in its current form, a stunning twist that could jeopardize the bill’s path forward.
A group of nine Democrats who have previously backed industry-friendly crypto legislation wrote in a statement Saturday that “the bill as it currently stands still has numerous issues that must be addressed,” adding they “would be unable to vote for cloture should the current version of the bill come to the floor.” The statement was signed by four Democrats who voted in favor of the stablecoin bill when it cleared the Senate Banking Committee in March: Sens. Ruben Gallego of Arizona, Mark Warner of Virginia, Lisa Blunt Rochester of Delaware and Andy Kim of New Jersey.
So what?
The statement from the nine Democrats is vague. It just mentions that the legislation needs “stronger provisions on anti-money laundering, foreign issuers, national security, preserving the safety and soundness of our financial system, and accountability for those who don’t meet the act’s requirements.”
As with all things in politics, this move is probably more about leverage than it is principles, but if I had to ascribe principled reasons for objecting to the bill, I’d boil it down to two things — narrow banking and corruption.
Let’s start with narrow banking.
People, individually, want a safe place to keep their money, but collectively, people want to live and work in an economy where entrepreneurial activity is funded by investors looking for a risk-adjusted return.
Fractional reserve banking accomplishes both tasks, giving people a safe place to keep their money (bank accounts) and giving banks a low-cost source of funding to invest in (i.e., make loans to) consumers, small business owners, and corporations.
Obviously, this process of funding long-term loans using short-term deposits (which is called maturity transformation) is very risky. We’ve spent a long time coming up with things — liquidity regulation, deposit insurance, the central bank as a lender of last resort, etc. — to make it less risky, but none of it works perfectly. Bank runs happen. Banks fail. And sometimes systemic risk creeps into the system and wreaks havoc.
Many crypto advocates despise the fractional reserve banking system and believe that stablecoins can and should replace banks as the mechanism that consumers use to safely store their money and make payments. Here’s Austin Campbell:
When you offer consumers … a regulated, bankruptcy remote vehicle that only does exceptionally boring things like owning t-bills, and they can use that thing instead to make all their electronic payments, they might prefer that to banks!
That is a good thing, not a bad thing. I will remind you that right now banks are paying 0% on deposits and keeping 100% of the profit when it goes well and handing the losses to depositors and the public when it doesn’t. Is this the system you want to defend? And if you do, why?
Austin is a terrific writer (and a very rational commentator on all things finance and crypto), but in this case, I will disagree with him.
Banks don’t pay 0% on deposits. The profits they generate aren’t earned by investing in T-Bills. They’re earned through loans to consumers and companies. And when things go bad, the losses are (mostly) borne by the banks’ shareholders and not by depositors and taxpayers.
Of course, you could argue some of these points if you wanted to restrict your definition of “banks” to the G-SIBs. Many of them do pay close to 0% on deposits. And, you may recall, we (taxpayers) have had to bail them out occasionally. If you want to argue that we need to end the era of “too big to fail” in banking, I’m all ears!
The trouble is that stablecoins aren’t going to kill the G-SIBs or lead to them being broken up. It’s regional and community banks and credit unions that are going to be crushed by regulated stablecoins. These financial institutions do quite a bit of socially useful lending, including lending into low-income and rural communities that private credit funds would have little interest in or ability to serve (especially if we end up sliding into a recession). I have not heard any stablecoin advocates explain how we will replace this lending activity, and if this is a concern on the minds of those nine Democrats, that seems entirely reasonable to me.
The second concern is corruption. This one is a lot easier to explain. Here’s the New York Times:
World Liberty has sold $550 million worth of a new cryptocurrency called $WLFI, with a large cut of the revenue earmarked for a business entity tied to the Trump family. In March, the company also created a stablecoin — a type of digital currency designed to maintain a price of $1, making it convenient to use for large transactions because its value doesn’t swing like a stock’s.
The company’s dealings have created conflicts of interest with no precedent in modern U.S. history. Some of the investors who bought $WLFI coins are foreign nationals who have been barred from supporting a president via campaign contributions or donations to the inaugural fund. And many of the firm’s corporate partners have clear incentives to curry favor with the federal government as they seek to expand in the American market.
Zach Witkoff, a founder of the Trump family crypto firm, World Liberty Financial, revealed that a so-called stablecoin developed by the firm would be used to complete the transaction between the state-backed Emirati investment firm MGX and Binance, the largest crypto exchange in the world.
Virtually every detail of Mr. Witkoff’s announcement, made during a conference panel with Mr. Trump’s second-eldest son, contained a conflict of interest.
MGX’s use of the World Liberty stablecoin, USD1, brings a Trump family company into business with a venture firm backed by a foreign government. The deal creates a formal link between World Liberty and Binance — a company that has been under U.S. government oversight since 2023, when it admitted to violating federal money-laundering laws.
And the splashy announcement served as an advertisement to crypto investors worldwide about the potential for forming a partnership with a company tied to President Trump, who is listed as World Liberty’s chief crypto advocate.
“We thank MGX and Binance for their trust in us,” said Mr. Witkoff, who is the son of the White House envoy to the Middle East, Steve Witkoff. “It’s only the beginning.”
You don’t have to be a professionally trained ethicist to understand the moral concerns here. We are creating a regulatory framework to give stablecoin issuers trust and institutional credibility at the exact same time that the President of the U.S. and his family are using stablecoins to openly accept bribes.
This is an easy fix. A simple amendment to the GENIUS Act banning federal government officials from having ownership stakes in stablecoin issuers would do it. But, of course, Senate Republicans won’t vote for an amendment like that (even if they agree with it).
#3: Sam Altman’s Vision of the Future is Super Depressing
What happened?
Ugh. I don’t know. Whatever. I guess:
Beginning this week, Worldcoin (WLD) will be available in most of the US for the first time, including via exchanges like Coinbase. Those who scan their eyes at a World orb will receive 16 WLD. Meanwhile, people who have downloaded and already registered with the World app in the US will receive a “pioneer grant” of 150 WLD dropped into their wallet.
The Sam Altman co-founded startup behind the project, Tools for Humanity, is also working with Visa to release a debit card later this year that converts WLD to fiat currency at checkout.
So what?
Tools for Humanity has a bunch of these creepy-looking metallic orbs that can be used to scan your eyes, collect your biometric data, and then the company airdrops you some of its proprietary Worldcoin cryptocurrency (which are currently trading for about 95 cents apiece). Tools for Humanity has harvested approximately 12 million eye scans from humans across 100 countries. And now, in our glorious age of no rules, it’s coming to the U.S.:
While previous SEC Chair Gary Gensler took a hard-line, litigious approach to crypto, the Trump administration has significantly dialed back scrutiny of the space. That political shift gave Tools of Humanity the confidence to launch Worldcoin in the US now
The goal of Tools for Humanity is to prepare the human race for Sam Altman’s other big project:
The startup’s stated mission has been to make World ID the primary method for verifying humans online. The implicit goal is to address the societal ramifications of OpenAI, Altman’s other company. As AI becomes more advanced, the idea is that a system like World ID will become necessary for distinguishing between what is generated and what is not. In Altman’s vision of the future, Worldcoin could also serve as a form of universal basic income for individuals whose jobs have been replaced by AI.
I love this.
Sorry for putting you all out of work and democratizing the ability to create fake content that will absolutely saturate all the information channels you rely on, but here’s a digital ID and some UBI!
The good news, I guess, is that we will have a lot more free time. And Sam Altman is preparing to help us figure out how to spend it (emphasis mine):
Aside from its upcoming debit card with Visa, the primary way to use Worldcoin is through the World wallet app, which enables users to send WLD and other cryptocurrencies to each other via a private chat service tied to World IDs. The World mobile app also offers over 150 mini-apps, including a new one from the prediction market Kalshi. World is also launching ID integrations with Stripe, Match Group, the parent company of Tinder, and Razer’s gaming platform.
Gambling. Inside an app designed to distribute universal basic income in a near-future dominated by super-smart robots. Perfect.
2 Reading Recommendations
#1: Something Alarming Is Happening to the Job Market (by Derek Thompson, The Atlantic) 📚
Speaking of a disturbing vision of the future, brought to you by AI, this article by Derek Thompson is worth a read. Makes the case that AI might already be significantly disrupting college graduates’ traditional career paths.
#2: Varo Raised $50M, Already Burnt Half, As Deposits Crater (by Jason Mikula, Fintech Business Weekly) 📚
Mr. Mikula continues to do a great job reporting on Varo, the beleaguered digital bank that can’t seem to patch the hole in the bottom of their boat. The latest call report data does not paint a flattering picture.
1 QUESTION FROM THE FINTECH TAKES NETWORK
There are a TON of interesting questions being asked in the Fintech Takes Network. I’ll share one question, sourced from the Network, each week. However, if you’d like to join the conversation, please apply to join the Fintech Takes Network.
What would you like to see in a revised Section 1071 Small Business Loan Data Collection and Reporting Rule? The CFPB is opening rulemaking back up! How would you revamp the rule if it were up to you?
If you have any thoughts on this question, reply to this email or DM me in the Fintech Takes Network!
