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December 7, 2023

Navigating the CFPB 1033 Rule: Personetics’ Insights on Monetizing Open Banking

Moving from “compliance” to “advantage”

With great anticipation, The Consumer Financial Protection Bureau (CFPB) has proposed a transformative rule in the financial industry – the 12 CFR part 1033. Otherwise known as The Personal Financial Digital Rights Rule, it will reshape how consumer financial data is accessed and used, heralding a new era in bank-client engagement. The rule requires financial institutions to provide consumers and authorized third parties access to data related to consumers’ transactions and accounts while establishing stringent obligations for third-party data access, including robust privacy protections.

The underlying CFPB policy objectives for 1033 are to establish a comprehensive set of standards to protect consumers and give them affirmative rights to their financial information. Through 1033, the CFPB will reinforce consumers legal authority to both share and obtain their financial transaction data.

Primary Implications for Industry:

  1. Mandatory Data Sharing and API Standards: Banks will no longer be permitted to block, limit, or delay sharing user data. They will be required to provide an industry-standard API for data sharing for Reg E and Reg Z covered accounts.
  2. User Consent: Annual authorization will be mandatory from 3rd parties for customers to certify their consent to share data.
  3. Restrictions on Data Use: Third parties are required to limit their data collection and usage to what is reasonably required to provide the requested service; engaging in activities such as targeted advertising or cross-selling are specified as not reasonably necessary to provide services.

Alongside the proposal, CFPB Director Rohit Chopra explained in a speech that the proposed rule is intended to make it easier for consumers to switch their accounts to competitors that offer more attractive rates or provide better services. While still in its comment period, this rule has the potential to be a game-changer for the banking industry. Banks need to understand the ramifications and consider key capabilities and tools that will allow them to compete more effectively in this new world order.

Preparing to Capitalize

From our perch as an industry leader in financial data-driven personalization, we advise banks to prioritize key capabilities to better capitalize on the new policy. These capabilities are critical regardless of any changes during the comment period of how 1033 is implemented:

  1. Deliver hyper-personalized insights on transaction data: Personalized insights for customers help reinforce the principle that the bank is looking out for customers and will leverage additional data to enhance the personalized insights experience.
  2. Create value-added “journeys” that can be enhanced with external data: Solutions such as goal-based and automated savings can help customers better save based on their cash flows. Enabling third-party checking accounts as an alternative source can facilitate the movement of balances to the bank and capitalize on the new policy.
  3. Communicate “relationship value”: Create a persistent tracker in the digital experience that shows customers the value they are receiving from the relationship with the entire bank (e.g. rewards, fees waived, multi-product discounts, etc.)

Conclusion:

The CFPB’s 1033 proposed rule heralds a new era in banking, one that emphasizes transparency, consumer choice, and data security. Personetics, with its deep-rooted experience in open banking, stands ready to guide financial institutions through this paradigm shift. Together, we can navigate these changes, innovating and delivering banking services that not only comply with new regulations but also significantly enhance customer experience and value perception.

This blog reflects the views and insights of Personetics based on current information and may evolve as further details of the CFPB 1033 proposed rule are released and interpreted.

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Jody Bhagat, President of Americas, Personetics

Jody Bhagat

President of Americas, Personetics

Jody brings deep operating experience in financial services – managing direct channels, launching digital ventures, and leading digital transformation programs. He was previously a Partner at McKinsey & Company, where he helped financial institutions define and execute digital transformation programs to drive customer growth and operating efficiency. Jody also served in senior digital operating roles at U.S. Bank, Wells Fargo, and Providian. In these positions, he led digital sales and service functions and direct-to-consumer businesses to deliver organic growth and enhanced customer experience. Jody has an MBA from Northwestern University and a BS in Computer Engineering from The University of Michigan.

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