Open banking, open opportunities

All eyes have been on open banking following the Consumer Financial Protection Bureau (CFPB)’s recent release of its Personal Financial Data Rights proposed ruling as different organizations, leaders and stakeholders look to define and understand its potential impacts and opportunities for members, credit unions and the financial services industry.

The proposed ruling would mandate that any organization offering products covered under Reg E and Reg Z give their customers or members the ability to safely and securely share personal financial information connected to their savings/checking and credit card accounts. The ruling stipulates that data sharing would run through standardized APIs (application program interfaces) to provide consumers with more control over their personal financial data, including what information is shared, with whom, how it is used and for how long. This would be a step toward making open banking more accessible and comprehensible.

The goal is to eliminate screen scraping, a practice in which a consumer gives a third party their online banking login credentials. The third party can then log into the consumer’s account to “scrape” personal financial information. At present, there is no way to control what the third party is scraping, for how long, and how or with whom that information is shared.

Open banking

The CFPB’s ruling and the idea of open banking are a result of a market-driven initiative led by consumer demand for the ability to securely share their data to better manage their finances. Visa found that nine in 10 consumers are linking their accounts with a third party, and one in three are connecting their financial accounts to six or more apps or websites, indicating this practice has become a firmly embedded consumer behavior.

However, according to an accounting firm serving small to medium-sized businesses (SMBs) presenting during the Financial Data Exchange Summit, many of their clients are facing issues connecting accounts when their financial institution doesn’t participate in open banking. And when their accounts are not able to be connected and/or information is not sharable over an API, the alternatives are screen scraping, PDF document upload or manual data entry, all of which are susceptible to unreliable and erroneous transfer of information, as well as frustrations among consumers. Many organizations, in fact, are actively looking for financial institutions that support open banking, allowing them to automate repetitive tasks and obtain a real-time view of their business.

Open opportunities

While it is understandable that some credit unions might perceive open banking as a threat, not participating in open banking poses a greater risk. Members may disengage if you don’t give them the ability to securely share their data and manage their finances. Open banking also comes with opportunities for credit unions as both a data provider and a data recipient.

For example, as a data provider via API rails, you can identify high-volume traffic with third parties and apps, extracting insights into services and products your members are using outside of your organization. Two examples include:

• QuickBooks – If a high number of your SMB accounts are leveraging QuickBooks, your credit union may want to integrate QuickBooks or a similar accounting software into your digital product offerings.
• Apps targeting loan applicants with thin credit files or no credit score – These consumers traditionally served by credit unions are increasingly going elsewhere. Having this insight would allow a credit union to examine how it could better serve these members.

When open banking first became a topic of interest, the narrative followed that data providers were banks/credit unions and data recipients were fintechs—but this is no longer the case. Credit unions can, and should, be on the receiving end of data portability as well. For example, credit unions can lean into data aggregation, or the collection and consolidation of financial data from various accounts for personal financial management. The poster child for this was Mint; however, as of March 2024, Mint is no longer available—leaving 3.6 million users looking for a new provider.

Automate, innovate, adapt

We have only just begun to explore the capabilities of sharing real-time personal banking and financial data through API platforms. For credit unions, it is not only a question of how to meet compliance requirements, but also leveraging the insights that can be extracted from being a data provider and how those insights can help drive strategy. It will also be key to identify the use cases on the receiving end of data portability that will help better serve members and meet the needs of your credit union. Finally, remember that you do not have to do it alone. Consider which financial technology providers or partners might allow your credit union to best leverage open banking as both data provider and data recipient.