Open Banking: Letting Banks Charge for Access to Data Most Likely to Yield Market Benefits
“Open banking” is a system in which data providers (e.g., banks) allow third-party services (e.g., fintechs) to access a consumer’s data upon the consumer’s request. In 2024, the Consumer Financial Protection Bureau passed an open banking rule requiring data providers to share data with third parties for free. In 2025, the bureau backed off and is now considering alternatives. Early reports say that the new rule will allow data providers to charge third parties for data access over a certain threshold (i.e., third parties can access small amounts of data for free).
Letting banks charge for data access is good policy because it gives data providers control over their own resources and (hopefully) negotiates market prices (“hopefully” because the bureau has not yet revealed if it will regulate the charges). Markets are founded on property rights and freedom of contract. An open banking rule that stops data providers from charging for data access does not respect either and will not bring market benefits.
Policy Should Lower Entry Barriers While Respecting Property Rights
Some fintechs argue that letting data providers charge third parties for access to data makes it too hard for fintechs to compete with banks. The higher the price a data provider charges, the harder it would be for any third party to pay. And a data provider could set the price so high that no third party could pay. Thus, some see any rule that lets data providers charge for data at all as yet another regulation protecting incumbent banks from competition. According to this view, the best open banking rules would require data providers to offer access to data for free, so that the result resembles a market with low entry barriers where consumers benefit from more competition.
To start, characterizing prices as a barrier to access (for competitors or consumers) is strange. Accountants, newspapers, grocers, and doctors charge for their services. If the providers had no right to charge, the products would be less expensive, but there would be little reason for anyone to provide the service. Ultimately, prices are an engine of investment and supply, not barriers to access. To justify characterizing charges for financial data access service differently, we would have to accept that banks are so enormously protected by regulation and consumers cherish data so little that market prices could have no value. That seems like a real stretch. But let’s move on to the next step of the argument.
Generally, the observation that regulation protects banks from competition is a solid argument. Regulatory reforms to reduce incumbent banks’ artificial advantages are a great idea. Policymakers should make it easier for new entrants to get bank charters and liberalize the rules for lending.
Such desirable reforms would reduce regulatory entry barriers and costs. But they would also let each firm control its own resources, respecting property rights. And they would let each firm set market prices, respecting freedom of contract. By contrast, an open banking rule that forces some firms to develop infrastructure and offer data for free undermines both. Such a rule is essentially price and profit regulation and, even when it leads to more entry, will not replicate the benefits of markets (as discussed below).
Some might argue that respect for property rights cuts against letting data providers charge because the data belongs to consumers. But Section 1033 gives consumers a right to access their data, not an exclusive property right. One could fairly say that consumers and banks share an interest in the data. Clearly, though, the infrastructure—for keeping the data accurate and secure or for sharing it— belongs to the data providers. Even if the consumers did exclusively own the data, it does not follow that the data’s caretakers should send that data to third parties without charge.
Reform with Market Pricing Restores Markets, Regulatory Arbitrage Distorts Decisions
To recap, incumbent banks benefit from regulatory arbitrage, and some argue that the way to fix this is more regulatory arbitrage to balance things out. But as a regulatory war of all against all continues, stakeholders become remote from market realities undistorted by regulation. Firms in the sector may experience rivalry, but the full benefits of markets remain absent. Prices, for instance, reflect regulatory fiat, not risk, supply, and demand. And investment levels fail to reflect risk or value added for consumers, further distorting economic activity.
This happened with the Federal Communications Commission’s (FCC) “unbundled network elements” rule in the 1990s. The FCC forced incumbent telephone companies to let competitors repackage the incumbents’ service for resale to consumers. The resellers paid only below-market regulated rates for access to incumbent networks. Investment lagged. Many new entrants failed to develop viable business plans because they could free ride on the incumbent networks. After years of legal disputes, the courts rejected the rule.
Open banking could go the same way. In Europe, where data providers must share basic consumer data without charge, third parties have complained about the quality of open banking interfaces.
So long as open banking data, interfaces, innovations, and systems have value—which they do seem to have, given consumer demand for data portability—policymakers should ensure that all participants in the system have incentives to invest in them. New entrants whose business plans are only viable if they free ride on others’ investments are more likely to cause security problems than to provide added value to consumers.
The best open banking rule would maintain key features of markets such as negotiated prices. If the bureau makes participation mandatory, it should avoid price regulation by letting data providers negotiate prices with data users, requiring fast-track arbitration if negotiations break down. Or the bureau could make participation in open banking optional and let free negotiations and market pricing prevail—even without a mandatory rule, competition in financial services is heating up, a win for consumers.
New entry in financial services is important to support more competitive markets. Without respect for freedom of contract and property rights, though, policymakers will have a Potemkin village, not a market.