New Consumer Financial Regulations Unlock Data For AI

Ian Kar is a financial technology expert and runs Arcana Advisors, a consulting firm for banks and fintechs looking to learn and build with Gen AI. He formerly was the founder & CEO of Fintech Today, a media publication; a product manager at Acorns; and a fintech reporter at Quartz.

While you may not have heard about it, there were some pretty huge developments in the consumer fintech regulatory world this week. The Consumer Financial Protection Bureau (CFPB) announced new rules around consumer financial data access, officially making it easier and more accessible for consumers to share and access their data. This regulatory shift isn't just another incremental update—it's a fundamental change that could unlock a wave of innovation in financial services, especially in AI.

For over a decade, the question of who controls consumer financial data has been a major point of contention between banks and fintech companies. Startups like Plaid have tried to bridge this gap by helping consumers connect their bank accounts to different apps, but traditional banks have been resistant. They've argued that these services use insecure methods like "screen scraping," where user credentials are copied, and data is extracted from a user interface—which they say isn’t safe.

A New Era of Data Access and Sharing: CFPB’s 1033 Ruling

This is where the new rules come in. The CFPB’s new regulations, which are based on Section 1033 of the Dodd-Frank Act, require banks to provide consumers with secure API-based access to their financial data. No more screen scraping—now, banks need to provide a secure way to share data, and they can’t charge for it either. The idea is to make it way easier for consumers to use different financial services without worrying about their data being locked away by their bank.

For fintech companies, this is a game changer. Instead of dealing with messy and often unreliable ways to access data, they can use these new APIs, which makes everything more secure and efficient. And for consumers, it means more choice, more control over their data, and more personalized financial services that actually make sense for their lives.

But this isn’t just big news for fintech. It's also huge for AI, especially for large language models (LLMs) and generative AI tools that have been taking the tech world by storm lately. Banking has been slow to adopt these technologies, mostly because banks are risk-averse and still trying to figure out how these tools can be used effectively.

How AI and Open Banking Intersect

LLMs thrive on vast amounts of data, and now they could be trained not just on generic datasets, but on real, personalized financial data. It could find patterns in your spending faster than any human could, make personalized recommendations, and even help you make smarter financial decisions.

For example, a generative AI system could look at your spending and predict a cash flow shortage before it even happens, help you identify places to cut back, or suggest investments that make sense for you. Unlike traditional budgeting apps, these tools would be dynamic, adapting to your changing financial situation, in real time. It's like having a personal financial advisor who knows you inside and out—only it's always available and doesn't cost a fortune.

How AI and Open Banking Intersect

The new rules mean that there's going to be a lot more accessible consumer financial data. LLMs thrive on vast amounts of data, and now they could be trained not just on generic datasets, but on real, personalized financial data. Imagine an AI that could analyze your transaction history, understand your spending habits, and give you advice that actually fits your goals. It could find patterns in your spending faster than any human could, make personalized recommendations, and even help you make smarter financial decisions.

Another use case is around taxes: AI could use your transaction data to automatically categorize expenses, identify deductible items, and even fill out preliminary tax forms for you. Instead of sorting through piles of receipts and statements, users could have an AI-driven tax assistant that cross-references financial transactions with tax rules in real time, making tax season far less stressful and reducing the risk of errors. The AI could also offer recommendations on tax-saving opportunities throughout the year, based on spending habits and changes in tax laws—essentially transforming a reactive process into a proactive one.

Challenges Ahead

Of course, there are still some challenges here. Data privacy is a big one. People need to feel confident that their data is secure and not being used in ways they don't approve of. Regulators and financial institutions will need to set high standards for privacy and security if they want consumers to trust these new systems.

Another challenge is execution. The new CFPB rules are a mandate that banks need to adhere to. So, eventually, banks will need to create secure API-based access to consumer financial data. But how will they actually get that to market and get people to use it? And if they can't charge third-parties, how are they doing to pay for developing & maintaining the API's?

Looking Ahead

The combination of open banking and AI could lead to innovations we can barely imagine right now. Think beyond simple budgeting or transaction analysis—imagine predictive financial health scores, AI helping you restructure debt, or fully autonomous financial management that optimizes your finances without you having to lift a finger.

The CFPB's new rules are a huge step forward in democratizing financial services. For a long time, banks have held consumer data behind closed doors, making it difficult and risky to share. Now, with open data and secure APIs, we could see an explosion of creativity and new services, powered by AI and tailored to each of us. It's not just about technology for the sake of it; it's about making financial tools that genuinely help people improve their lives.

There are challenges—security, privacy, trust—but if these can be addressed, we're looking at a financial services landscape that's more open, innovative, and user-friendly than ever before. The combination of open banking and AI isn't just a small step forward; it's a shift that could fundamentally change how we think about and manage our money.