Hsu: Open banking presents challenges, opportunities

Open banking presents potential opportunities as well as safety risks, Acting Comptroller of the Currency Michael Hsu said April 19 during the Spring FDX Global Summit

Open banking enables consumer-permissioned sharing of financial data with third parties. Hsu said open banking could impact how his agency supervises compliance, liquidity and operational risks and third-party risk management. “[Banks] will need to expand from reliably handling their customers’ money, to also reliably handling their financial data,” Hsu said. “While this may bring significant benefits to consumers and generate new avenues of value creation, it will also likely raise accountability challenges when mistakes are made and customers are hurt, especially as the set of players in the space grows and proliferates.” 

 Any increase in the complexity and volume of consumer data could pose risks and require new controls, Hsu added. He cited the ability of customers to quickly move their money to a different bank as potentially beneficial for customers while increasing the liquidity risks of retail deposits.  

“Already, there is a sense that online and mobile banking may have facilitated unusually large and rapid outflows of wholesale deposits at Silicon Valley Bank and Signature Bank,” Hsu noted.

Relying too heavily on predictive data made possible by open banking can cause prejudice, he added. “If we become too starstruck with data and too wedded to statistical prediction, we risk locking people and communities in and overlooking their potential and the possibility of change and progress,” he noted. 

Also, Hsu said open banking is testing the previous separation between banking and commerce. “The power of network effects with digital businesses seems to drive technology firms towards constant expansion into adjacent fields, including banking,” he added. “This bears careful monitoring and close collaboration among government agencies.” 

Hsu said the increase in open banking also highlights the differences between banks’ uses of conservative business models with the tech industry’s extensive reliance on disruption and code. “In banking, trust is everything,” he noted. “It cannot be engineered or manufactured or bought. It must be earned, carefully maintained and vigorously protected. An open banking culture that recognizes that and puts trust above other objectives, including growth and profit, will succeed and thrive over time.”