 | |||||||||||
| |||||||||||
Happy Wednesday, Fintech Listeners! I hope your (short) week is going well. One small piece of news before we get started — Our friend Evan Weinberger reported that the CFPB is investigating several community lenders backed by the CDFI fund. Additionally, the OMB has yet to approve notices of funds availability for three programs operated by the CDFI Fund. The funds can’t be spent without OMB approval and they are set to expire at the end of September. The CFPB and the OMB are led by Russ Vought, who, it should be noted, is an unelected government bureaucrat who appears to be pulling out every trick in the book to kill CDFIs, despite the immense, bipartisan support that CDFIs have enjoyed from elected representatives for decades. Baffling. Utterly and completely baffling. Anyway, let’s talk about fintech! — Alex Was this email forwarded to you? 3 BIG IDEAS FROM THE PODCAST  This week on the Fintech Takes podcast, I sat down with Rafe Mazer, researcher and author of the excellent report "Who Pays for What? Pricing and Monetization Options in Open Finance," since I needed to look up from the U.S. open banking soap opera I've been living in for the past year or so, and ask how the rest of the world is handling the question of data access fees. So, how is the rest of the world handling it? A lot of different ways, some of them surprisingly effective, and almost none of them the way the U.S. has defaulted to. Tune in for the full conversation here And read below for my three big ideas... #1: The Four CostsIn his report, Rafe outlined four main costs that are incurred in the development and operation of a national open finance ecosystem. The first are the set-up costs that go into standing up the ecosystem, defining technical specifications and building out the APIs. The second are the transaction costs. For example, Brazil processes billions of API calls per month, which isn't a trivial number. The third are the maintenance costs; the constant patching and updating that any live technology system demands, carried out by both market participants and (if relevant) the central infrastructure. The fourth, and the one most planners underestimate, is expansion: the cost of growing the system from bank accounts and payments into insurance data, investment data, different recurring payments, and use cases that didn’t exist when the system was first stood up. Almost every market builds for the first cost and discovers the others later, sometimes much much later, when the system’s already locked into a model that can no longer adapt. Rafe's preferred design looks something like a centralized infrastructure whose fundamental principle is cost recovery, layered with cross-subsidization tools: free tiers for basic data, premium pricing for high-value data, temporary discounts for new entrants. South Korea and the UAE come the closest to this design. South Korea's exchange, run voluntarily by an industry body with no regulatory mandate, updates its pricing every three years based on actual infrastructure costs and gives small fintech companies up to a 50% per-call discount. #2: Brazil Never Sent the BillOne of the most fascinating moments in our conversation (and mind you, there were many) was when Rafe walked me through what happened to Brazil's threshold pricing rules. The idea was simple: below a certain volume of API calls, access is free. Above that, the receiving institution reimburses the provider. Free access for smaller entrants, a cost discipline for the heavy users. Brazil built this into the regulatory framework. Here's the kicker: the reimbursement mechanism has effectively never been used. The reason is practical. Brazil runs bilateral API exchanges between 800+ participants. To bill someone for exceeding their threshold, you'd need accounting infrastructure to track every call, reconcile across hundreds of counterparties, and issue invoices. Nobody wanted to build it. And once you look at the flows, you can see why. Nubank and Banco do Brasil are both massive users and massive providers of data. The net difference between what they'd owe and what they'd collect was essentially a wash. Nobody wanted to fund the accounting to discover they didn't have anything to collect. In a way, this is the best argument for centralized infrastructure. When everything flows through shared pipes, the accounting is trivial. The regulator can see everything, and enforcement becomes cheap. The governance costs of running a decentralized bilateral system aren't zero — and in Brazil's case, they were high enough to render a core regulatory mechanism functionally inoperative. Some food for thought this Wednesday. #3: Are You There, Data Protection? It’s Me, Alex.The U.S. is very unusual, relative to other markets that have built out open finance ecosystems. We don’t have a national data protection law. The closest we have is the Fair Credit Reporting Act (FCRA), which I personally love, but is both old and insufficient for the many ways that consumer data is used today. Rafe draws a direct line between the lack of a national data protection law and the influence big tech has over elected officials in the U.S., which is an interesting connection indeed. The absence, he argues, isn’t an oversight. It’s the product of sustained, well-funded resistance. That legal vacuum is what makes the open banking debate in the U.S. feel so precarious. We’re trying to build a data-sharing ecosystem without agreeing on what consumers are owed in that exchange. And until we settle what consumers are owed, everything else we build (be it pricing models, API standards, or reciprocity rules) will be built on top of sand. That said, I’m cautiously optimistic. LLMs and agentic AI might finally create enough visible consumer benefit and harm from consumer data sharing that the political will to regulate it may materialize. Or maybe something big enough will break that Congress moves. Either way, we may just be a few more messes away from getting this right. Sponsored by Prism Data Once cash flow underwriting became standard at origination, most institutions assumed the work was done. It wasn't.  WHAT I'M LISTENING TO #1: Who’s Behind That Shell Company? We May Never Know (Planet Money) 🎧This is a story I was unaware of! #2: AI Liability Comes Into Focus: A Conversation with Mark Geistfeld on the ALI's Civil Liability Principles Project (Consumer Finance Monitor) 🎧This is such an incredibly important topic. I’m surprised more people aren’t talking about it. But I’m not surprised that Alan Kaplinsky, host of Consumer Finance Monitor is talking about it. *Bonus: Banking on Primacy, Episode 3: Banking at Work (Fintech Takes x Chime) 🎧Fintech as an employee benefit sounds straightforward. It isn't. Jason Lee, Chief of Chime Enterprise, unpacks why most EWA products top out at 30% workforce penetration, what serves the rest, and what that means for the financial health industry taking shape around it. Listen here *This rec is brought to you by one of our fantastic brand partners. Thanks for the read! Let me know what you thought by replying back to this email. — Alex | |||||||||||
|
{beacon}
Workweek Newsletter
