Maybe you’re unfamiliar with open banking, or you’ve only heard the term on the fringes of conversation. Perhaps it inspires a feeling of trepidation—will open banking be the next event horizon for the banking industry, or simply a passing fad?

Only time will tell. 

In the meantime, we’re here to help shed some light on open banking and get you thinking about the opportunities such a change might bring.

So, what is it? 

Open banking is a mutually beneficial system in which financial institutions and third-party providers (fintechs) share data in ways that can both focus on and enhance the customer experience. Software programs called application programming interfaces (APIs) make this secure exchange of data possible.

For instance, in an open banking environment, personal financial management software allows customers to manage accounts across multiple banks with ease. Meanwhile, banks would enjoy access to greater amounts of customer data than ever before, all in real time. That means instead of waiting for a mortgage client to gather months of statements, your institution could access that information right away. Plus, in the world of open banking you’d be able to offer individual clients more accurate terms and target promos more precisely. 

To put it even more simply, it’s like using Facebook to sign into your Netflix account. It’s easier for you, and, since both companies share information with one another, you’ll be presented with better, more personalized content. 

That’s great, but how will we keep client data safe?

That’s the million-dollar question, one that banks and governments overseas have already begun to answer.

Take the European Union’s Payment Services Directive and the United Kingdom’s Open Banking Standard. They both regulate which types of entities can conduct banking services, in addition to upholding security standards and developing the infrastructure necessary to keep customer data secure. 

We haven’t seen anything definitive that would indicate plans to establish such standards in the U.S., but they’re certainly not out of the question. 

But why would I allow competitors access to our clients’ data?

If you immediately associate fintechs with competition, you need to look at the bigger picture. After all, your institution is already working with third parties every day—from your mobile app provider to the online applications built into your website and more. My guess is you’d be surprised how many companies already have access to your customer information.

Typically, fintechs augment or replace poor experiences within an institution more often than they compete against that institution. This is the attitude to keep in mind when anticipating and strategizing around open banking. 

This is where open banking can become an asset to your organization and help you build a stronger, healthier customer portfolio.

After all, why would you continue to offer a mediocre online experience—a digital patchwork of individual third-party components you’re forcing to work with one another—when you can create an experience that’s intelligent and client-focused?

Your willingness and ability to think more progressively about these kinds of partnerships could be beneficial for your institution whether open banking changes the landscape or not. Such partnerships could help get new products to market much more quickly, which allows your institution to become more agile and adaptable in the future. 

At the end of the day, new products mean new clients, which means more opportunities to cross-sell, engage, and promote to them. If more people participate in the financial marketplace and devote more wallet share to it, the more money there is to be made. 

Looking forward

Maybe open banking will radically change the banking industry. Or it could putter out and fade away, like so many other “here today, gone tomorrow” financial gimmicks. Implementation could go smoothly or jerkily, similar to what we’ve seen around EMV payment methodology.

Today, we’re as full of anticipation as you are, so we’re keeping up to date on the newest challenges as they come into view. That’s what we’re here for—to help you plan and strategize in order to face your obstacles head on and capitalize on your opportunities to grow.