The US is heading full speed ahead into a future run by a fully open-data economy. Data has traditionally been siloed away in vaults that are inaccessible to customers and other businesses – but this is no longer the case. More and more businesses are letting down the veil of secrecy in place of more open pools of data and infrastructure sharing.
Big Data + Banking = Open Banking
One of the industries being heavily impacted by this new trend are Banks. Until very recently, customers and other institutions had zero access to any of their own data. It was common practice to just accept this as the status quo. So what is our open banking future?
Then, a revolution began when big data and analytics processes began to show a different path forward. 98% of companies are now invested to some degree in big data projects and say that having access to more data means more growth for their business. Analytics and AI capabilities continue to accelerate every year, and companies are beginning to understand the value of interoperability and transparency. So, banks had to react or fear customer and regulatory issues.
This new approach to full-scale data utilization and ownership has created a new trend in banking called open banking.
What Is Open Banking?
Open banking is the practice of implementing new API’s in order for banking networks to be able to communicate with data from outside institutions. If you are unfamiliar, an API is an “application programming interface” and is the infrastructure that houses a company’s technology stack such as website, data, and more. Open API’s were originally developed to help connect banks to outside data sources, yet their functionality has begun to evolve.
Open API’s are becoming integral parts of a bank’s internal pipeline. They are allowing them to benefit from gaining access to outside services from institutions such as payment rails and cash management services. Big players such as Mint and Square use API’s to help connect people’s banking payment information with simple-to-use applications. Mint accesses banking information and organizes it for people into actionable planning and management of finances. Square helps connect people’s banking payment information more easily to checkout kiosks at businesses – online or in-store. Both of these get this done by analyzing simple data points these banking apps generate.
These services have turned banking on its head and have shown consumers that there is power in controlling and utilizing data. Not just that, but a new breed of startups has been born from this new compatibility trend – and they are partnering with banks left and right.
The Future of Open Banking Is Coming
Thanks to developments in open banking across the world, we can expect advancements in open banking to continue to accelerate here in the U.S. For example, Australia’s Consumer Data Rights Act and the UK Open Banking Standard are helping to guide programmer’s to design infrastructure properly for banks and require open sharing of customer data.
If it is any indication of interest, 90% of banks worldwide are planning on integrating open services into their API. The explosion of activity in real-time payments and open banking has made payments transformation a key strategic initiative for many banks who understand the evolving business model. Although driven primarily by regulatory mandates in Europe, open banking has taken off in North America due to natural competition. Now, almost 40% of consumers prefer to do their banking totally online. Without the need for a branch anymore, digital-only neobanks have a real opening here to start to gradually take over the market share.
The message to U.S. banks is clear; customers prefer real-time payments, whether it’s through a mobile app, or through traditional banking services.
Banks Fight for their Futures
If these banks want to survive this new trend, they will need to be ready and actively looking to open the gates to their API’s and encourage collaboration with fintech startups who can integrate forward-thinking capabilities into their digital toolset.
Banks are no longer simply a place to store money, the industry is evolving into providing smarter tools that help customers make payments more easily (both for payments and sending money to friends/family/coworkers) as well as making them feel like they are in control of their finances.
Keep an eye out for new technologies that aid small businesses and their ability to manage their finances digitally, provide customers with easier payment options, and remove inefficiencies in cash management. If the consumer prefers to use it, then the banks are likely to soon come knocking.