Open Banking Builds Trust Among Consumers at Multiple Levels

Sharing data across organizations while protecting it should facilitate new approaches to solving consumers' financial challenges.

Many consumers continue to bank digitally even as many areas have reopened, and as a result secure, accessible and easy-to-use online financial tools grow ever more important. People want — and need — easy access to their financial data to make informed decisions and take advantage of post-pandemic opportunities.

As risk management strategies and technology standards evolve, the financial services industry has begun to pivot away from legacy technologies, such as screen scraping, which have historically been the main avenue for aggregating financial data with the consumer’s permission.

As a component of open banking implementation, application programming interfaces (APIs) offer a more uniformly protective approach to data-sharing, giving aggregators a secure, reliable path to access the financial account data that consumers want them to have. However, until open banking becomes universal, financial applications will need to rely on secure information captured by trusted intermediaries; they’ve proven they can manage sensitive data securely and responsibly using the methods currently available at any given financial institution — whatever they might be.

The Rise of Open Banking Protocols

The industry’s move toward API-based connectivity in the U.S. began to gain momentum in 2018, when the U.S. Treasury called for more consumer control over how institutions share their data. Since then, a growing number of financial institutions and technology companies around the world have been collaborating to develop technical standards for improved data sharing, such as the U.S.-based Financial Data Exchange (FDX).

Where screen scraping mimics consumer behavior on a financial site, APIs function as pipes that connect different software applications using a common format. This structure can provide more granular control over what information is requested, released and shared among financial institutions, third parties and consumers.

This greater control comes at a cost, however.

Implementation is resource-intensive: Financial institutions have to invest in expensive technology and hammer out data-sharing agreements with the third-party aggregators their consumers use.

These concerns have slowed implementation, but now that large financial institutions have begun to adopt the technology, momentum is shifting. Some providers are expected to start blocking screen scraping in 2021.

Waiting in the Wings, and Waiting…

A factor that may play in this is the Biden administration’s executive order urging the Consumer Financial Protection Bureau to implement data-sharing elements of the Dodd-Frank Act that have been on hold for years.

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More Benefits of Open Banking Coming to Light

Financial institutions and technology providers must invest in solutions to move to an API-based system. Those companies that embrace adoption could find substantial advantages. The success of open banking depends on the collaboration between all major players in the ecosystem, including financial institutions, fintechs, data aggregators and regulators.

Consumers stand to benefit from the better connectivity and reliability of a system that shares data more efficiently. Currently, more than three million Wells Fargo customers have connected their data to financial technology and financial wellness apps through data exchange agreements forged with data aggregators.

Institutions that deploy API-based systems will also be able to offer consumers greater control over what data they allow to be shared, and under what circumstances. This flexibility has the potential to improve both data security and consumer trust. When a consumer sees that their bank or credit union is active in this movement, it will also elevate their level of trust, in the process making them more inclined to link their financial accounts to financial wellness apps.

Consumers Demand Personalization:

Customers expect hyper-personalized digital experiences across industries and throughout the marketplace. Financial institutions must be able to keep up.

For example, offering personalized insights on financial decisions such as finding the best mortgage rate or retirement savings, helps develop consumer trust and promotes financial wellness. By building secure, effective and reliable systems, financial institutions can attract consumers on competing platforms who worry about the security of their information. They can also attract new consumers whose uncertainty and concerns made them unwilling to use data aggregation services in the past.

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Secure Approaches will Open Path to More Open Banking

As open banking becomes more prevalent, the potential for improved operational savings and greater insight into consumer use cases could also drive further innovation.

Consider a virtuous cycle in which institutions offer consumers sophisticated insights via a more secure, stable ecosystem. For example, fintech service Tiller Money now links its customers’ banking information from four major banks to its solution via direct API access, enabling consumers to manage their money easily with spreadsheet-based tools. These new insights, in turn, can unlock innovative tools that monitor consumers’ financial activity for unseen patterns and help households better manage their finances and rebuild their savings.

As society emerges from the pandemic and as hard-hit areas of the economy seek to take advantage of a broad-based recovery, this type of information will only become more valuable — underscoring the financial, personal and collective impact of open banking.

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