Open Banking essentially creates an ecosystem of data sharing which in theory could revolutionize the banking industry. While still a new concept, Open Banking has been embraced by many countries in Europe, with the European Union already supporting regulation through the Revised Payment Services Directive (PSD2) in January 2018.
According to The Financial Brand, “2018 will be a turning point for banking as the EU countries are obliged to incorporate PSD2 into national law and force banks to publish their Application Programming Interfaces (APIs). . . Consumers’ financial data will be released from the bank’s monopoly and will finally become the property of the customers who will have open access to it at will.”
So, what does the Open Banking movement mean for financial institutions here in the U.S., and how will it impact the consumer experience for credit union members going forward?
“Open Banking is a revolutionary concept that calls on financial institutions, for the first time, to share data universally through an open API model,” said Nish Modi, vice president of digital and business intelligence for CO-OP. “This new technological approach will enable third parties to more rapidly bring new products and services to market and promises to fast track innovation and integration in financial services as never before.”
Consumers Are Already on Board
Research indicates that 61 percent of consumers are willing to allow open access to their finances if that makes it possible for them to conduct banking via a mobile app.
“Open Banking will deliver to consumers mobile access to all their checking and credit card balances at one time,” said Modi. “Large banks in the United States understand the demand for this paradigm and are already starting to open their data to third parties.”
Indeed many banks and credit unions have already begun to invest in Open Banking technology, including CO-OP.
“Technology is the driving force behind the trend to Open Banking,” said Modi. “Plus, the competition from peers and new entrants is urging incumbent banks and service providers, including CO-OP, to develop a digital strategy that includes Open Banking APIs. This is enabling financial institutions to redesign their IT architecture and work with fintech start-ups to develop innovative solutions for their clients.”
While the battle to bring Open Banking to consumers is clearly underway, it is still anyone’s to win, adds Modi. Here are some of the main benefits that Open Banking hopes to deliver to consumers and the industry at large.
1. Faster Payments.
Open Banking will enable payments to become almost instantaneous, as Payment Initiation Service Providers (PISP) – firms that initiate payment transactions using bank API connections – will be able to integrate all payments into one digital interface. This means paying bills, paying for goods or transferring money can be as fast as sending a text message.
2. Enhanced Security with Third-Party Services.
The release of users’ data to third-parties is technically in violation of the agreements with banks and their customers currently but Open Banking has the ability to change that. With approved access to bank APIs, developers of third-party applications no longer have to rely on the risky practice of “screen-scraping” and will likely be required to license their operations with regulators, as well as meet a host of other security standards.
3. A More Seamless Experience.
As Open Banking and artificial intelligence (AI) converge, the user experience will be digitally transformed. Data will stream in from a multitude of sources, allowing service providers to hone in on exactly what a consumer needs at any given time. In essence, banks and other financial institutions will be able to create a profile of each customer, forecast their patterns and behavior, and build customized products more efficiently. Users will also be able to enjoy faster onboarding as they’ll no longer be required to provide authentication across multiple providers.
4. Increased Competition.
With so many barriers to entry broken down, we can expect market competition to increase dramatically – and this will open up a new landscape of products and services available to consumers.
“Consumers are desperate for a different breed of mobile payments options,” says Modi.” In the future, market demand will require credit unions to make it easy for another firm to gain access to their members’ data, and to engage with their platforms to transact. CO-OP already enables many solutions that integrate back office and member-facing products seamlessly. Ultimately, the investments we are making today will create a single, integrated host ecosystem, allowing credit unions to place all the benefits of Open Banking right at their members’ fingertips.”
Hear more about how Open Banking will revolutionize the financial services industry at THINK 18; Nish Modi will discuss how CO-OP is innovating in the Open Banking space during our Power Sprints session.
The original article Open Banking is Coming and May Change Fintech Forever can be found on Insight Vault.