Open Banking is the practice of providing third-party service providers with open access to banking, transaction, and other financial data from banks and non-bank financial institutions through the use of APIs. Ultimately, the aim is to boost the quality of financial services on offer to consumers and small businesses alike.
It’s making headlines as it rapidly gains traction around the world. Open Banking’s origins lie in Europe, where the EU’s PSD2 came into effect in 2018, laying the legal foundations for requiring financial services organisations to give their customers control over their own data. The result has been an explosion of fintech challenger banks, SME lending solutions, and payments services which rely on open connections between their new offerings and their customers’ primary bank accounts.
The UK has become something of a poster child for Open Banking, with efforts driven through a government-backed scheme led by the Competition and Markets Authority (CMA). Around four million of the UK’s consumers and businesses now actively use Open Banking-enabled products and services.
But it’s not without its problems, and some industry figures have recently questioned its success. Starling’s Anne Boden told MPs at a Treasury Committee hearing that Open Banking has failed to lift off as hoped. “Open Banking is a lesson of us trying to make something work, when halfway through the project we realised it wasn’t going to work,” she said.
Is Open Banking rockin’ in the free world?
In the US, there’s currently no legislation underpinning the growth of Open Banking, and the lack of national standards has resulted in lower awareness amongst the population. Recent international polling by Morning Consult revealed 55% of US adults have never heard of Open Banking, placing America 10th in a list of 14 countries surveyed.
That said, Open Banking in the US is quickly becoming a ‘when’, not an ‘if’, with the Biden administration calling for improved consumer controls of personal financial data, and calling on banks to accelerate efforts to incorporate APIs into their services.
As reported by Finextra, President Biden “didn’t just throw a bone to US Open Banking, he underwrote the mortgage, laid the welcome mat, and set the table to officially welcome it to the neighbourhood.”
Regulation, however, is no guarantee of success. PSD2, for example, dictates that banks must create APIs that interact with third parties, but there’s no specific guidance about how to do it. This has led to a rather fragmented ecosystem, with Open Banking working well in some EU countries, like Belgium, but running into significant challenges in others.
Taking a direct, market-driven approach
In the absence of a regulatory-driven mandate, the more ambitious US organisations have already embarked on a market-driven approach to Open Banking. This isn’t unique to America, with the likes of India, Japan, and Singapore also pushing ahead despite the lack of a formal or compulsory requirement to do so.
Chief amongst these US data-enabled organisations is Plaid, which has been partnering with the nation’s banks and fintechs to promote data sharing and transparency in a traditionally opaque sector.
This includes a partnership with U.S. Bank, one of America’s largest, with the two companies combining to upgrade U.S. Bank customers to an API-based, credential-less open finance experience, and in record time.
Another notable pioneer is Validis, an established UK fintech with extensive operations in the US. Validis is now supporting American banks and lenders, who can use its platform to instantly access data from major accounting packages. The company’s innovative ‘smart data pipe’ extracts, standardises, and analyses small business accounting data via APIs, helping lenders to better understand and support SME customers in getting the finance they need to grow.
Then there’s Finicity, a leading provider of real-time access to financial data and insights, which has been acquired by Mastercard. Finicity started its life helping American families to gain more control over their finances with a digital budgeting tool, but quickly expanded into data access, looping in financial institutions and providing customers with a real-time picture of their financial health.
These are just a few examples that highlight that Open Banking has made valuable inroads into the US market, even without a regulatory framework in place. With regulation from the Biden administration poised to now catch up with market-driven efforts over the coming year, Open Banking’s footprint is likely to further widen and improve the financial services available to consumers and SMEs.
By drawing on the plethora of data available, forward-looking companies can better assess credit risk and affordability, better tailor products and services to each customer’s specific needs, and improve their user journeys.
Team up with Ezbob to unlock the Open Banking opportunity
Ezbob is now open for business in the US, and we are bringing our vast Open Banking experience with us.
We’ve been using Open Banking for years. Open Banking data feeds the algorithms for our award-winning, high-speed customer acquisition platform, which means it’s more precise for determining credit risk.
It also enables us to improve the customer journey in today’s highly-competitive market, because we can replace customer inputs with data gathered from multiple sources in seconds. This provides the enhanced user experience that people now expect from financial services, leading to more completed applications for credit and bank account openings.
Get in touch today to find out more.
