Open Banking is a hot topic in financial services. Multiple jurisdictions around the world have recently adopted open banking standards, and others are working towards its adoption. Although it’s not yet a regulatory requirement in the US and Canada, many US and Canadian financial institutions are already working on their open banking strategy and its implementation. Financial institutions that rely on third-party core processors will be looking to their vendors for open banking solutions, and we believe that core processors are in a unique position to capitalize on this opportunity. If you are a core processing platform, you can grow your business through open banking partner integrations.
As a refresher, open banking is a movement in finance around the globe. Simply put, open banking refers to a set of standards that enable financial institutions and their clients to use their financial data with partner products - and easily integrate with fintech partners.
As a core processor, you are at the heart of a bank’s or credit union’s operations. Your clients are relying on your platform to service their customers, remain competitive, and grow. Through the use of open banking, you’ll be able to help your clients achieve these objectives - and expand your business in the process.
Here are 3 reasons why open banking needs to be among the CTO’s top strategic priorities for 2021.
Expand your offerings. Open banking will enable you to expand your core platform’s offerings with capabilities such as enhanced AML, KYC, loan origination, and real-time payments. Your company will not need to build these capabilities from scratch, but rather partner with fintechs that are specialized and are focused on providing the best products in their domain. This will also help your company focus on delivering the best possible products in core banking. Implementing a modern open API standard will also make your platform more attractive for new fintech partners to create integrations with you. As a result, you will have a stronger and more complete product.
Security, performance and control. Consumers are already accessing their banking data through aggregators that utilize screen scraping. This practice entails security risks, tends to break, and causes unnecessary performance load on your platform (just ask your systems admin). Open banking will enhance security by providing tokenized access, provide granular control over the data that’s being accessed, and reduce infrastructure load.
Regulatory Requirements. Open banking is expected to become a regulatory requirement in North America. The North American financial industry is aligning around the Financial Data Exchange (FDX) standard, which has been adopted by over 100 firms, and rolled out to approximately 12 million consumers in the United States. In Canada, the second phase of open banking virtual consultations has taken place in November 2020. You will be required to implement it, and need to have a plan for doing so.
Putting it all together, open banking adoption is well under way in the US and Canada. Open banking support - or at the very least a clear point of view, roadmap, and timelines for it will be expected of you by your clients. Case in point, several industry-leading platforms such as Banno by Jack Henry are already developing open banking capabilities. With an increase in digitization in 2021, higher competition, security and regulatory reforms, open banking needs to be at the top of your CTO’s priorities this year.
We’re working with top financial institutions and core platforms in the US and Canada to form their open banking strategy and roadmaps, select the right vendors, and manage their implementations. Need help forming and executing your vision? Read our whitepaper on open banking adoption and contact us for a free consultation.