Open Banking: What’s Holding your Bank or Credit Union Back?
Banks and credit unions strive to be everything for their account holders – a “one stop shop” for all of their diverse banking needs. Achieving that goal, however, has become increasingly difficult. Third-party fintechs and disruptors have taken the industry by storm, offering cutting-edge capabilities for low or no cost, and increasing the risk of account holder attrition. As these market entrants continue to flood the financial services space, traditional institutions are looking for ways to keep up with competition and stay relevant with their customers and members.
While commonplace and mandated in places like the European Union and the United Kingdom, US consumers and traditional financial institutions have yet to fully embrace the power of open APIs and data sharing to deliver superior products and services. As consumers grow increasingly comfortable with alternative solution providers, a shift towards open banking looks more inevitable than ever.
Forrester Research predicts 2022 will be the year open banking takes off in the United States, setting the stage for a redefined account holder experience. In fact, 81% of survey respondents have linked their primary banking account to a fintech tool, which means open banking has already become part of their financial routine, whether they realize it or not.
Open banking creates an environment in which the consumer journey and experience sits at the forefront, and banks and credit unions can easily connect account holders with convenient and affordable offerings that complement traditional banking. Often viewed as a threat, financial institutions must understand the value and connectivity that open banking brings to your account holders. Allowing your account holders to easily share access to bank account information and access subsets of financial services means institutions can provide new, hyper-personalized experiences, based on specific habits and behaviors, that deepen engagement and strengthen institutional loyalty.
There is no single open banking strategy that guarantees sustainable success. Institutions will have to carefully consider the role they play in an open environment, as all products and services moving forward must be crafted for incorporation into other platforms. Open banking will maximize connectivity between different providers, blurring all boundaries and barriers that separated traditional institutions from third-party challengers. Giving consumers the ability to pick and choose the best financial tools through marketplaces and other approaches means expectations will continue to grow. To be successful, financial institutions must have a holistic understanding of their account holders.
So, what’s holding financial institutions back?
Outdated technology that no longer aligns with market demands and does not have the ability to integrate with outside systems is a major obstacle. For open banking to be a success, institutions must recognize the value in transforming their existing infrastructure into an end-to-end digital ecosystem that embraces open APIs, drives stronger data utilization, and transforms the way account holders are served.
Another issue hindering the adoption of open banking is today’s lack of regulations in the United States. The Consumer Financial Protection Bureau (CFPB) is being urged to implement data sharing provisions, which could then open the door for open banking. Meanwhile, data aggregators in the private sector have filled the gaps to help financial institutions link to third-party services while keeping consumer data safe.
Open banking presents an opportunity for financial institutions, fintechs, and other market entrants to drive innovation and set a new standard for personal financial management. Open banking addresses the challenge of timing and relevance, delivering individualized experience based on each account holders’ unique financial journey. As a result, banks and credit unions create a stronger sense of loyalty between consumers and the banking provider, positioning them for success, both today and long into the future.
Read more about modernizing your solutions in an article, "Ask Yourself These 5 Questions. It Might Be Time to Refresh Your Check Processing and Payment Solutions."
Click here to schedule a discussion with our product experts to learn more about how Alogent can help with your solution modernization efforts and to evaluate an open banking strategy.
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