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Earlier this month, the Consumer Financial Protection Bureau (CFPB) came out with a number of new proposed regulations that – when they go into effect – will completely change the financial services industry, particularly for community institutions. As financial data experts at FinGoal, we've examined how these rules will impact community institutions and highlighted the opportunities that lie within the regulations, instead of just compliance. We’ve found out exactly how community institutions can not only adapt, but thrive in this evolving environment.
Primarily, these regulations are designed to grant account holders greater control and access to their financial data. The primary objective is to empower individuals with the ability to share their financial data with third-party companies securely. This could include everything from personal budgeting apps to digital financial advisors.
In essence, the CFPB 1033 Regulations are opening the doors to a more interconnected and dynamic financial landscape, also known as a greater push to open banking.
With more control over their financial data, consumers are no longer stuck to any one financial institution, and can easily switch between FIs. It also promotes innovation in the fintech industry allowing for the creation of new and improved financial products and services. These regulations aim to break down barriers that may have previously limited consumers' choices and led to a lack of transparency within the industry.
The timeline for the implementation of the 1033 Regulations is a crucial aspect of understanding how they will impact community institutions. These regulations are not an immediate, one-size-fits-all change. Instead, they are being rolled out in stages, with different deadlines for banks of varying asset sizes.
Within the first 6 months of the finalized of the regulations, the largest institutions must have a live strategy that allows account holders to extract their data. Following this inital phase, a structured timeline unfolds, correlating with varying asset sizes. Institutions will face distinct deadlines, with the next ones being set at 12, 18, 30, and, finally, 48 months, for the country's smallest institutions. In this sense, smaller community institutions have an advantage over larger institutions in that they have more time to implement and prepare for the industry changes brought by the regulations.
It's essential to note that while the 1033 Regulations promise a more open and competitive market, they also come with challenges and concerns for community institutions. These regulations require institutions to adapt and be proactive in their approach to stay relevant in this rapidly evolving financial landscape, all while being transparent about their data usage practices to maintain consumer trust and regulatory compliance.
In order to make this data available to their account holders and meet regulations, community institutions will need to plan with their private digital banking partner to implement the right technology and strategies to meet these requirements. The sooner institutions start this process, the more likely these regulations will become a competitive advantage as opposed to another barrier in the ecosystem.
Any time there is a big change across an industry, there are always winners and losers. These new regulations should not be viewed as solely a burden or a mere compliance hurdle to overcome. Instead, community institutions should take these regulations as an opportunity to redefine their strategy and strengthen their position in the industry. Community institutions can now harness outside data in powerful ways that can give them a competitive edge, personalize their platform, and build customer loyalty.
Community institutions can harness ransaction data from core systems and other sources to see not only what their account holders are doing within their institutions but also at larger financial institutions, retailers, and service providers. With customer granted permission, outside data can be used for hyper-targeted marketing, allowing community institutions to reach customers on a more personal level and, thus, enhance their customer engagement.
In addition, given the timing of the regulations, smaller institutions have a distinct advantage over larger institutions. If small institutions stay ahead of this and work towards a solution sooner, they can get access to the data of what’s happening at the large banks first, before the big banks can get access to the data of smaller institutions.
The Community Banking industry is at a crossroads, and the decisions made now will shape its future. The CFPB's 1033 Regulations may appear as another regulatory measure that banks will simply need to find a solution for so they can cross off their to do list. But, they present a huge opportunity for community institutions. It's essential for community institutions to view these regulations through the lens of innovation and transformation rather than mere compliance.
As the industry begins to reshape to account for the CFPB’s new requirements, community institutions must focus on collecting and utilizing data effectively and transparently. They have a unique chance to know their account holders deeply, predict their needs, and engage with them in a highly personalized way. By embracing this change and developing a proactive approach, community institutions can set themselves on the path to not just survive, but thrive in this evolving landscape.
To learn more about the CFPB’s 1033 regulations and how they will effect community institutions, check out the Fintech Cowboys podcast episode with David Nohe.
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