How Does the 1033 Open Banking Rule Impact FinTech Startups in the US?

\ In October 2024, the Consumer Financial Protection Bureau (CFPB) finalized the 1033 rule, officially ushering in Open Banking regulatory framework in the US. Built on Section 1033 of the Dodd-Frank Act, this final rule grants consumers full control over their financial data, giving them the right to share this information with third parties (e.g., fintech startups) of their choice. While Dodd-Frank set the expectation for consumer data rights many years ago, it wasn’t until 2021 that regulators started to take action. Now, with this new rulemaking in place, the US is moving closer to a consumer-centered, fintech-friendly regulatory landscape—one that could lower barriers to entry for newcomers and disrupt the status quo for established financial institutions.

\ Globally, Open Banking has been in motion for years. PSD2 was launched in Europe in 2018, requiring banks to share customer data with 3rd party service providers to foster innovation and competition. The UK’s Open Banking Initiative took things further, mandating that top banks build open APIs to improve data accessibility. The U.S. can now draw from these experiences as it shapes its own Open Banking framework, taking lessons from Europe’s successes and challenges.

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\ For fintech startups, the 1033 rule unlocks new opportunities—and presents a few complex questions.

\ Redefining Bank-Fintech Relationships - The final rule mandates that banks share customer data with 3rd party service providers, potentially equalizing the playing field and allowing fintechs to compete more directly with traditional institutions. But along with the opportunities come challenges: fintechs and banks must navigate and negotiate issues like data ownership, tokenization, and robust security standards. As this regulatory shift reshapes bank-fintech dynamics, the industry could see new forms of partnerships emerge—or existing hierarchies overhauled.

\ Lowering Financial Barriers for Startups - Currently, many fintech startups could spend more than $500 per user per month on bank account connectivity, with additional fees for each ID verification or additional services. By calling for specific data-sharing standards, the 1033 rule aims to make accessing financial data less costly and more reliable. Organizations like FDX (Financial Data Exchange) have already mapped out an extensive range of standards that may be used for data-sharing, from tax records to account balances. With this standardization, fintechs could experience fewer financial hurdles, enabling them to allocate resources toward innovation and customer acquisition.

\ Despite the optimism, there are limitations to the immediate impact of the 1033 rule.

\ Data Aggregators Stay in Play - Large data aggregators like Plaid, Finicity, Yodlee, and MX continue to control data flows, maintaining their role as data gatekeepers and charging fees for access. The 1033 rule may reduce costs somewhat, but free access to data remains unlikely. These established data companies might provide more value-added services, similar to providers like Codat and Rutter, focusing more on analytics and integrations rather than simply enabling data connections.

\ For fintechs, access to bank data is just one line item in a budget dominated by customer acquisition and operational expenses. For instance, digital lenders find that data access costs are a small fraction of their overall costs. While Open Banking could improve operational efficiencies, the true impact on expenses depends on broader shifts in how these companies manage marketing, sales, FTEs in underwriting and back offices, etc..

\ Small Bank Exemptions - Not all U.S. banks fall under the 1033 rule. Banks with less than $850 million in assets are exempt, leaving over 3,000 institutions outside its immediate scope. While large banks hold the lion’s share of deposits and fintech partnerships, smaller banks are critical players in areas like small business lending and community-focused financial services. Without direct regulatory pressure, many smaller banks may still feel peer pressure to modernize as they look to retain customers and diversify their revenue streams. Fintechs aiming to serve niche markets may find opportunities in partnering with these smaller institutions, leveraging joint resources to build API connectivity.

\ Open Banking Isn’t Essential for Every Fintech - The 1033 rule opens the door for Open Banking, but it doesn’t mean every fintech needs to jump in with both feet. Many startups already have access to necessary financial data through other means, whether from platforms like Amazon, Salesforce, or QuickBooks. For some, targeted data tools—such as OCR for document processing—may be more practical and needed than adopting a full Open Banking approach. The value of Open Banking depends largely on a company’s business model, and not every niche fintech will find it necessary.

The CFPB’s 1033 rule signals an important step toward Open Banking, offering fintechs lower data access costs, easier integrations, and a more level playing field with traditional banks. But this isn’t an open invitation to abandon established relationships or existing systems. Key gatekeepers remain, data costs may not fall as dramatically as some hope, and fintechs will need to consider carefully which aspects of Open Banking will genuinely support their growth. Ultimately, the 1033 rule isn’t a complete game changer, but a nudge forward—a chance for fintechs to reimagine what’s possible within a still-developing Open Banking ecosystem in the U.S.