A better borrower experience: Bringing open banking to branches

As digital banking becomes more popular, what does that mean for the future of use cases through traditional banking channels like bank branches? Unquestionably, the in-person borrowing experience could use more of the technology that makes online lending so popular; namely, open banking connectivity to make transactions more efficient in real time.

Banking strategists have the potential to bring open banking to bank branches by using Personal Identifying Information (PII) authentication for real-time connectivity but with in-person service. Let’s explore this approach.

Brick-and-mortar locations: pillars for financial equity

Despite the rise of digital banking, brick-and-mortar locations still play a vital role in financial access and equity. According to a 2021 FDIC National Survey, two-thirds of banked households in 2021 (63.4%) used a bank teller at least once in the past 12 months to access their accounts. (Results from the latest edition of the biennial survey are expected later this year.)

Every year, consumers submit over 70 million loan and credit applications through non-digital channels, equating to roughly $1.64 trillion in originated balances and credit limits. Per the CFPB and Ellie Mae, 14% of all general purpose credit card applications and 39% of all mortgage applications are made in a branch. The numbers suggest that the more complicated and high-dollar the application, the more likely borrowers are to seek in-person support. One survey showed that 77% of customers prefer face-to-face interactions with a banker for guidance on financial transactions requiring lengthier discussions. Assistance from a trusted advisor is clearly a significant draw to in-branch support.

What’s more, local bank branches provide financial access to marginalized populations. The 2021 FDIC National Survey establishes that less educated, lower-income, elderly and rural populations disproportionately rely on brick-and-mortar locations. Lower-income, less-educated and older households were twice as likely to use bank branches. Before the COVID-19 pandemic, nearly nine-in-ten rural households visited a bank branch.

For others, in-branch banking is a necessity due to the digital divide; internet connectivity is not ubiquitous, even in urban areas. For example, in cities such as Baltimore, over 40% of households or some 96,000 households lack a wired broadband connection, which limits their financial access through digital channels, according to a research report from Brookings. The same report shows a positive correlation between the presence of bank branches and access to credit, in particular, mortgage origination. And the favorable effects of bank branch presence get stronger the closer the branch is to the neighborhood.

Claims that digital banking has marked the end of traditional, brick-and-mortar banking channels point to the number of recent branch closures: 6,000 since 2020. However, the claims of the demise of branch banking have been greatly exaggerated. There is evidence to suggest that banks that closed branches may have over-indexed toward digital channels. And now the pendulum is swinging back. Big banks including PNC, Bank of America, JPMorgan Chase, and Fifth Third are building new branches and upgrading existing ones. Credit unions, not wanting to fall behind, continue to expand access in rural areas.

With this investment in their brick-and-mortar footprint, banks and credit unions should have the ability to provide frictionless and affordable products and services. Traditionally, this has been seen as the comparative advantage of digital banking, in large part due to the efficiency and ease that open banking brings to the digital experience.

Digital channels benefit from allowing consumers transacting at one financial institution to use their account credentials from their other institutions to permission the sharing of real-time financial account data required to complete their transaction. In contrast, consumers conducting the same transaction through a bank branch traditionally cannot benefit from open banking functionality.

So, how can in-person lending teams create a better banking experience for individuals who choose to visit a physical location? Especially if the borrower has multiple accounts but does not bank digitally?

PII-based authentication can unlock valuable benefits

Today, consumers can access and subsequently share their financial data using elements of their personal identifying information (PII), such as their date of birth and their cell phone number.

This type of PII-based authentication is a commonly accepted form of identification verification by banks to allow their consumers to access their accounts and account data, such as when they forget their credentials, or call their phone channel, or visit a branch.

The key to unlocking open banking benefits for non-digital channels is to allow the use of PII-based authentication in lieu of credentials. With the consumer’s express, meaningful consent, financial institutions and their data aggregator partners should be permitted to provide open banking benefits to their consumers using PII-based authentication to access that consumer’s financial account data.

Open banking should benefit all consumers, not just those who are comfortable banking online or on their mobile devices. PII-based authentication allows that, bringing the benefits of open banking to the millions of consumers who use non-digital channels for their banking needs every day.

Foster financial inclusivity and confidence, regardless of channel

Bank branches were created to be pillars of household financial wellness and small business activity and they continue to be a popular option, whether by choice or by necessity. But no matter their reason for visiting a physical location, individuals should be able to conduct financial business face-to-face efficiently and receive guidance from their banker. Bank branches must remain a viable and competitive channel for effective financial transactions.

With a consumer’s express, meaningful consent and PII, financial institutions offering non-digital channels can substantially improve their ability to offer accurate and competitive products and services by making it easier to obtain and verify material data required for such offers. And not only does it support more competitive offers, it also shrinks the transaction time for applying, decisioning and funding.

This level of service can shift consumer perception. Consumers could walk into a branch, see familiar faces, and bank comfortably knowing that their experience will be efficient and seamless.

Mit Shah is Cofounder and COO of Method Financial.