Open banking is more than just a standard
Financial institutions can expect more regulatory changes around open banking on the horizon.
Open banking was started to provide more transparency and competition in the banking space by giving consumers control of their financial data.
The EU, with its PSD2 standard, and the UK, with its open banking standard, have led the charge. Many countries around the globe have unofficially started to follow or plan to create similar regulatory standards across all financial services. The next major country to follow is the U.S.
The Consumer Financial Protection Bureau (CFPB) has begun the process and recently released Section 1033 of the Consumer Financial Protection Act of 2010 (CFPA). Here is the opening act of Section 1033: “This part implements the provisions of section 1033 of the CFPA by requiring data providers to make available to consumers and authorized third parties, upon request, covered data in the data provider’s control or possession concerning a covered consumer financial product or service, in an electronic form usable by consumers and authorized third parties; and by prescribing standards to promote the development and use of standardized formats for covered data, including through industry standards developed by standard-setting bodies recognized by the CFPB.”
Although open banking is now becoming part of the regulatory landscape, it also presents an opportunity for financial institutions to expand their services.
What does open banking mean?
The “open” services concept takes many shapes and forms, but at the core, open banking is about easily accessible, secure connected and controllable data streams.
Many organizations are years behind even being able to truly have these capabilities as self-managed services. Most depend on expense data aggregation solutions to help fill the void. Others are adopting standards like FDX.
FDX is a financial industry common standard for the secure and convenient access of permission consumer and business financial data. Many prominent names in financial services have already started adopting it and extending their capabilities at a fast pace.
So why aren’t all organizations rushing to get ready? The answer is simple: It’s hard to value the power of these capabilities.
The challenges and benefits of open banking
For the most part, open banking capabilities are considered a back-office functionality that, until this day, has not provided much strategic value unless the organization is forward thinking and dabbling in fintechs, offering embedded services (such as embedded finance) or extending itself to an institution-as-a-service or banking-as-a-service model.
However, participating in open services will not only allow your organization to comply with Section 1033 but also help you develop insights into customer transactional behavior like nothing else.
Transactions from other financial services providers, with the permission of your customer, will be accessible and actionable. And being able to understand and model customer behavior will be in many ways expanded to levels that would be impossible otherwise.
Preparing for open banking
With standards still in the works, there are a few items to consider.
There are many ways to start getting ready and building the foundation to leverage open standards to maintain your strategic advantage and stay ready for future CFPB regulations.
Section 1033 is all about customer control, so if your institution wants to fully operationalize and take advantage of open services and standards, customer control of that data is a must. Also, having an API-forward mindset, modern infrastructure and data strategy can help you do more than just connect to those upcoming open standards.
How Wipfli can help
Wipfli is ready to help guide you through your options when navigating open banking. From upgrading your tech stack to securing sensitive data, we can help your financial institution innovate and expand your services. Contact us to learn more today about how we can help you prepare for the industry’s future.
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