A work in progress

Don’t expect open banking to “officially” launch anytime soon in the U.S.

Yes, it has been discussed at a conceptual level in Washington. Yes, it is finding some substantial traction globally in regulatory-driven countries like the U.K. Banks and fintechs will continue to play an active role in launching open banking applications here in the U.S. And in the private sector, open banking is expected to grow for commercial as well as consumer customers.

To see what that future will look like, look at its present applications, which are much more substantial internationally than they are domestically. These are made most relevant by scoping the six-year history of open banking in the U.K. and checking in on some tentative steps taken in the U.S.

In the U.K., a more regulated than market-driven economy, open banking was mandated by its Competition and Market Authority (CMA), which set its initial set of regulations in 2017. Since then, 7 million businesses and consumers have used its products to do two things: access new payments products and protect themselves against fraud.

Among the most popular applications is personal finance management, which gives users a holistic view of their finances by presenting all accounts regardless of their original banks in one dashboard and variable recurring payments (VRPs). VRPs are a form of payment instruction that can be set up between a user, their bank and a third party to set the amount and timing of a series of future payments.

True to its word, open banking “opens” a customer’s data and payment platforms to third parties via APIs. It has caused some concerns around fraud, which have made “overlay” services like the name-checking service Confirmation of Payee essential to stopping scams like authorized push payments fraud.

The U.S. as a market-based economy has predictably shied away from the kind of mandates seen in the U.K. That hasn’t stopped various federal agencies from addressing potential regulations, but none have been forthcoming. The Consumer Financial Protection Bureau (CFPB) is working to accelerate open banking through a personal data rights rule intended to jumpstart competition and protect financial privacy.

To do this, the CFPB is formalizing an unused legal authority enacted by Congress in 2010 that gives consumers the right to control their personal financial data. While the CFPB is open for comments, its final recommendations will not be formalized until 2024.

“Our proposal will recognize that the CFPB must resolve certain core issues because system participants are deadlocked or because existing approaches do not put consumers fully in the driver’s seat,” said CFPB Director Rohit Chopra in a June 12 speech. “But many of the details in open banking will be handled through standard setting outside of the agency. Properly pursued, such standards can allow open banking to evolve as new technologies emerge, new products develop and new data security challenges arise.”

Banks aren’t waiting for the CFPB and have started to “open” open banking applications. Wells Fargo, forexample, formed a partnership with financial data platform Plaid in 2019, giving its customers the option to turn on or off data sharing through Wells Fargo’s Control Tower, part of its mobile and online experiences.

Other banks have opened their APIs to developers that could include fintechs or independent entities to develop data sharing and data aggregation. Among those banks are U.S. Bank, BBVA, Bank of America and Capital One.

At some point—regardless of whether Washington issues simple guidelines or strict regulations—open banking will become a factor in business and consumer relationships. Fintechs will continue to have a leading role in banking innovation due to their agility and tech-centric approach and are poised to continue that role as open banking continues to gain traction. Some of the ways this will take shape include the following:

1. API integration: Fintechs can use open banking APIs to integrate their clients’ bank account data into their own applications. This enables clients to access their financial data in one place and gain a more complete view of their financial health.

2. Customized solutions: Fintechs can build customized solutions for their clients using open banking data. For example, they can create budgeting tools, investment management platforms or lending solutions that are tailored to their clients’ needs.

3. Data aggregation: Fintechs can use open banking APIs to aggregate data from multiple banks and financial institutions. This enables clients to see a complete view of their financial data, even if they have accounts with different institutions.

4. Compliance: Fintechs can help ensure their clients’ compliance with open banking regulations by staying up to date on regulatory requirements and implementing appropriate security measures to protect customer data.

Expect more “wait-and-see” tactics as the market moves through concerns around privacy and API standardization. Caution, after all, is a hallmark of the banking industry, even as fintechs push the envelope on innovation. As the co-head of global payments for BNY Mellon’s treasury services wrote in a recent op-ed, “There is still a long way to go for most of the market, but it’s promising that there are already many early success stories that show we are certainly on the right path.”

Businesses now expect consumer-like experiences from all their key partners, including their banks. According to The Global Treasurer, integration, data management and innovative services are becoming increasingly important to corporate customers.

As a result, businesses have higher expectations from their banks, seeking seamless integration, streamlined processes and personalized financial solutions. Open banking plays a significant role in shaping these expectations and driving the industry toward delivering enhanced experiences for businesses.

Rita Hubner is VP of solutions consulting at Bottomline Technologies.

We offer actionable insights on other open banking topics that can benefit financial institutions in the BAI Executive Report, “Creating new opportunities through open banking.”