Fiona Roach Canning is the co-founder and CEO of Pollinate.
Open banking has been much hyped in recent years. But while markets like the U.K. and Australia have embraced open banking, its potential has yet to be fully realized in the U.S. It could be that 2024 is the year this all changes.
While regulatory mandates have driven steady progress in open banking in the U.S. thus far, recent months have seen the Consumer Finance Protection Bureau make the case for a Personal Financial Data Rights Rule (PFDR). The Rule will mandate banks to share customer data with qualified third parties via application programming interfaces (APIs) and should be a boon for open banking in the U.S.
Until now, companies have been (with varying degrees of success) trying to deliver open banking alone. As regulatory and federal momentum picks up in 2024, however, this is about to change, and the U.S. could be about to find the sweet spot where tech and regulatory momentum converge.
In this brave new world, banks will need to innovate or collaborate to compete with fintechs, especially when those fintechs are newly empowered with customer data. The lesson from jurisdictions where open banking has made greater inroads is that businesses shouldn’t wait for the regulatory stars to align. The customer demand for open banking is already there, and the finance businesses with an eye on the future should be delivering open banking now, preempting the PFDR.
Getting Ahead In Open Banking
The fact is that there are many parts to the open banking puzzle, with regulation being only one of them. Beyond regulatory mandates, tech providers are also pushing for more open banking. Tech companies see the value that a single customer view brings and the way customer expectations are changing as a result. As such, tech is pushing for a much faster pace of innovation and adoption, and we see this reflected in growing recruitment in the data space.
As my company’s recent Bank to the Future report details, banks are taking many different approaches to this challenge, but the option of standing still simply won’t be an option if 2024 is the year that open banking takes off in the U.S.
So, as open banking gathers pace, how can U.S. banks draw upon the experience of counterparts in the U.K. and Australia to accelerate success?
Waiting For The Revolut(ion)?
Revolut is a great example of a business that got ahead of the curve and is now a U.K. success story and one of the world’s leading fintechs, powered by seamless account-to-account (a2a) payments. Revolut owes much of its success to having been quick to realize the potential of open banking-facilitated a2a payments. Now, Revolut processes more than 400 million monthly transactions, rivaling mainstream banks.
The lesson? Don’t make the same mistake as mainstream banks made in the U.K. and wait for the regulators; if you do, you may well fall behind competitors who aren’t so happy to wait.
TrueLayer
This is another business that started building for open banking early. In so doing, TrueLayer has positioned itself as the middleware connector layer in open banking and become a key part of the open banking ecosystem and, by extension, the future finance sector. Despite the modest total sales of £4.14 million, TrueLayer’s revenues increased by 56% in 2022, and payment volume was 2.8 times higher than the previous year. Around 10,000 developers are creating services based on open banking standards through TrueLayer, which is again indicative of the latent demand that exists for open banking for those who are willing to deliver it.
Beyond Finance
Beyond finance, we see open banking solutions being applied in the U.K. Energy businesses, for example, are using a2a payments, making it easier to interact with end customers through this enabling tech. Ultimately, nonfinancial businesses will be attracted to open banking for the same reasons as finance businesses: better customer experience and smarter uses of data to drive efficiency and customer service.
So, while the PFDR will no doubt be a boon to open banking in the U.S., the lesson from elsewhere is to not be bound to waiting for the right regulation but to push ahead and deliver the innovation and customer focus that is increasingly central to banking in the 21st century. Regulation will be a tipping point, but banks should act now.
While the regulation hasn’t quite been there until now, savvy tech and finance businesses have been quietly building single-data infrastructure in the background in readiness. Therefore, 2024 could be the point where regulation and tech align to take open banking in the U.S. beyond excited speculation and into the lives of consumers and businesses across the country.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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