Regulate Early or Later: Open Banking, Fintech and Innovation


At a relatively recent international conference, I discussed how the United States generally tends to take a hands off approach to regulating new technologies which create new markets at the outset of the development of the technology.  For the most part, we allow the market to sort out the best way for the technology to develop and be deployed to consumers.  The downside with this approach concerns public choice issues.  Once the industry develops and matures—along with obvious problems, such as privacy, consumer safety and competition concerns—there tend to be issues associated with regulating that industry and the problems created.  The relatively more mature industry may attempt to capture agencies and exercise considerable influence over our politicians and other parts of government.  This is tricky because we avoid overregulating early and dampening the development of new markets and technology, but we also tend to under-regulate and pay later.  However, from the big picture perspective, it is likely better to have the industry than not have it at all.  Interestingly, we do seem to be pretty good at allowing new technologies to overrun existing markets (apparently with players who are too slow to react to changing technology and are not well-organized).  As an example, think of taxi drivers and that industry. 

Stanley V. Ragalevsky, Judith E. Rinearson and Linda C. Odom of K&L Gates in the United Kingdom have authored an article titled, “Is Open Banking Coming to the United States?”  In the article, the authors essentially describe how the EU and UK have adopted an open approach – which allows consumers to require banks to share their information with third party providers which may enable faster innovation in the Fintech industry.  The United States is apparently taking a much more cautious approach and not mandating that banks must share based on consumer request apparently amidst concerns with privacy—slightly ironic given the differences in approach to privacy between the United States and Europe. 

The United States may have a new general consumer privacy law soon.  One interesting issue is whether it will preempt all state law privacy laws.  A unified approach may reduce costs associated with compliance and potentially lead to more innovation.  Stay tuned!