Last week, President Biden signed an executive order urging the CFPB to grant consumers full control over their financial data. Doing so, the White House contends, will empower consumers by making it easier and more cost-effective to switch banks and lenders.
The executive order concerning access to financial data—which was just one part of a sweeping set of reforms Biden signed on Friday to “promote competition in the American economy”—is seen as a victory for proponents of open banking.
To further discuss the current state of open banking in the U.S. and how it relates to current bill payment options available to consumers, PaymentsJournal sat down with Kimberly Hebb, Chief Risk Officer at BillGO and former Director for Compliance Policy for over twenty years at OCC, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service at Mercator Advisory Group.
Listen to full podcast: Can You Pay My Bills? BillGO Can Certainly Help.
In 2020, BillGO contracted a bill pay study from the Aite Group, “How Americans Pay Their Bills.” Just a few of the findings from the study are displayed in the chart below:
These statistics may not surprise many in the industry. Consumer wants and needs in relation to bill payment services are ever evolving. “Where this ties in is that understanding consumer demand in this space… is an integral part of the open banking discussion and more specifically, how a well-developed open banking system can safely and securely meet consumer demands,” explained Hebb.
The study showed that in 2010, Americans paid just under 14.5 million bills annually. Ten years later, in 2020, they paid 15.5 million bills, an increase of nearly 7%. When considering the overall gross dollar volume, these monthly bills cost Americans 29% more in 2020 than they did ten years prior. Americans also paid 41% more in credit card bills in 2020, as compared to 2010. This gross dollar volume cost Americans close to $766 billion annually, accounting for $6 out of every $10 spent on bills in the United States.
Part of the reason for this increase is that 46% of Americans used loans or credit cards to supplement unforeseen expenses. “And this tracks to multiple surveys that note in 2019, two-thirds of all millennials were living paycheck to paycheck, [as well as] a report issued by the Board of Governors of the Federal Reserve last year [that] noted 37% of U.S. households lacked the cash they needed to cover just a $400 household emergency,” added Hebb.
The BillGO survey also determined 76% of consumers are paying their online bills going directly to each individual biller’s website, while less than a quarter of those surveyed paid their online bills using a financial institutions’ online platform. When asked if they were satisfied with their methods of bill payment, consumers stated that they wanted more security, more options, and more convenience, as well as confirmation that the bill was actually paid.
Consumers and small businesses can benefit from open banking in a number of ways. “The cornerstone of open banking is the idea that the consumer or the small business is empowered to choose, with [the provider’s] consent, whatever financial services provider they prefer to receive financial products or services [from],” said Hebb. And when consumers and small businesses choose to use financial services and products such as accounting, bill payments, and retirement planning, they provide those entities with access to their financial data.
Additionally, many Americans are not adequately served by traditional financial services industries, and consumers who lack the appropriate credit history may not have access to a traditional loan, but may be able to work with a fintech company using alternative data sources.
The lack of customer control over their own data has led to a fragmented environment that limits choices and can suppress financial access and inclusion. “A key part of this cornerstone is that the consumer or the small business has the right to expect that their financial services provider is properly regulated, and meets some minimum-security thresholds,” explained Hebb. Unfortunately, this is not the state of open banking in the U.S.
Many laws and regulations in the industry that are applicable to all financial services can make it difficult for financial institutions (FIs) to allow consumers access to their own data. Some FIs agree that consumers should have access to their data but are unsure how to move forward. Others are not familiar or equipped with API access. Further, some FIs will not move forward without guidelines and regulations, while others don’t believe the data belongs to the consumers.
“It’s this siloed vision that creates the opportunity for potential consumer harm, and this could be unintentional by a new entrant without experience in the financial services world, or a bad actor whose only priority is profit,” concluded Hebb.
It is crucial that FIs become familiar with consumer demands, which stretch across very different constituencies. It is also important to note that the pandemic has made consumers more savvy, and they are more able to self-assess what works best for them and their financial needs. The environment is complex, and the technology, modalities, and different players are all intertwined. Ultimately, the key to meeting these demands is to keep innovating.
The financial services industry is a heavily regulated space, and the entities in the industry should act like they are subject to supervision and oversight. But Hebb warns not to get too hung up on the scope of a law or regulation: “Most of these were written before we could use our cell phones to pay a bill, to check an account balance, or to buy a car.”
BillGO is driven by the core belief that everyone deserves access to a healthy financial future. Towards that end, the company recently joined FDATA North America. And Hebb was recently appointed to the FDATA North America’s Policy Committee, enabling her to draw on her years of experience with the Office of the Comptroller of the Currency (OCC) to advocate on behalf of consumers and small businesses seeking full utility of their financial data.
“Our role, in addition to being good stewards and participants within the financial services industry, is to provide information to the financial organizations we serve,” she said. These organizations include legislators, regulators, and consumer groups. As the Chief Risk Officer of BillGO, Hebb feels it is her duty to listen to the voices of all parties involved or affected by new guidance and regulations. She also makes it a priority to demonstrate BillGO’s commitment to information security and consumer privacy and protection.
“It really just takes one bad actor and the infliction of consumer harm to initiate a knee-jerk reaction that may seem to address the concerns but really doesn’t,” added Hebb. By being part of the conversation and offering information as well as answers to the questions of financial industry professionals and consumers, BillGO and FDATA can aid in the development of laws, guidance, and regulations so that consumers can continue to have their needs met in a way that is both secure and innovative.