December 15, 2022
How to prepare for an open finance future in the U.S. - Webinar Recap
Plaid Policy Team
Open finance technologies power the apps and services that millions of people rely on to manage their financial lives – from budgeting and money management, to investing for retirement, or building credit. In fact, 8 in 10 Americans use fintech and nearly half use these apps and services to manage their finances daily.
This increasing demand for digital tools and services is top of mind for financial institutions. At its core is secure data access and sharing through open finance technologies. That’s why we recently convened industry experts for a discussion on how financial services players are preparing for an open finance future.
To help build dialogue on what this means for financial institutions, Plaid and American Banker hosted a webinar, Preparing for an open finance future in the U.S. The discussion featured Brooke Ybarra, Senior Vice President of Innovation and Strategy at the American Bankers Association, Dan Smith, Executive Vice President and Head of Regulatory Affairs at the Consumer Bankers Association, and was moderated by Leigh Lytle, Head of North American Policy at Plaid.
Panelists discussed topics including:
Why consumer demand is driving digital financial innovation in the U.S.
How open finance unlocks new opportunities for financial institutions
Competition and connectivity: APIs are the name of the game
The deepening of bank-fintech partnerships
Building a safer, more trustworthy financial services ecosystem
These topics are especially timely given the federal government is working on new rules to strengthen consumer financial data rights, which are core to the open finance ecosystem.
Here are some key takeaways and insight for how financial institutions can set a strategy for success:
Consumer demand is driving digital financial innovation in the U.S.
Eight in 10 Americans use fintech and nearly half of Americans (48%) use these apps and services to manage their finances daily. Consumers are finding meaningful value in digital finance tools, reporting benefits including saving time, saving money, and navigating economic stress.
As consumer demand for financial data sharing grows, it’s driving open finance innovation in the U.S. 76% of Americans say the ability to connect their accounts to apps and services they want to use is a top priority when choosing a bank. This is somewhat in contrast to other regions' consumer demand, such as the European Union, where open banking regulation was enacted before consumers began to widely adopt digital financial services and the regulations themselves opened up consumer demand.
“We are seeing banks of all asset sizes looking to further digitize various aspects of their business, whether it's seeking efficiencies in the background that will have a long-run impact on consumers and the products and services that banks are offering or something that's more customer-facing such as digital onboarding or more digital, automated loan servicing products.”
- Brooke Ybarra, Senior Vice President, Innovation and Strategy, American Bankers Association
Open finance unlocks new opportunities for financial institutions
Consumers benefit most when data sharing flows in both directions between their financial institutions and the fintech apps they’re using. In an open finance world, consumers can more easily share financial data from across their financial relationships with their primary banks, giving banks a more complete picture of the consumers’ financial lives. In return, banks can offer more tailored products and services and expand their digital offerings roadmap.
“We're increasingly seeing it being a two-way street, a marketplace where banks share the data, but also use third-party data to create their own products and services that consumers are looking for. That creates more competition and choice for consumers.”
- Leigh Lytle, Head of North American Policy at Plaid
APIs are the name of the game—prepare for technical uplifts early
APIs will be critical to enabling secure and reliable data connectivity for consumers in an open finance world. Building API-based data connectivity will require some technical lift for financial institutions. Organizations should start thinking through their technical roadmaps now—identifying technical requirements, implementation process, and potential use cases.
Core providers and data networks like Plaid will be key in supporting regional and community banks to quickly get up to speed on open finance technical requirements. Editors’ Note: Plaid today partners with core providers such as Jack Henry, Q2, and Project Finance to help their customers stay ahead of industry open finance trends.
“Start thinking through APIs and a roadmap for what implementation of this will look like…I really wouldn't underestimate the technical pieces of this as we move into more of an API-based data sharing here.”
- Brooke Ybarra, Senior Vice President, Innovation and Strategy, American Bankers Association
Bank-fintech partnerships will likely deepen amidst emerging guardrails for innovation
Banks and credit unions are enabling digital connectivity for their customers by building in-house and partnering with core providers, aggregators, and fintechs. We’re likely to see a more unified approach to API protocols, data connectivity standards, and authorization.
“Banks across the board are looking for ways to partner with fintechs and 1033 puts structure around what is happening already. It will provide a better regulatory framework in which to build this innovation.“
- Brooke Ybarra, Senior Vice President, Innovation and Strategy, American Bankers Association
Consumers are the north star and their data privacy and security remain a top priority
Financial institutions understand the importance of protecting the consumer and are already working to strengthen consumer data privacy and security. Any new rulemaking should ensure that consumers can understand and consent to exactly how their data is being used.
“We should be careful to be always thinking about the customer and the consumer, and how we protect and help them with the products and services they need.”
- Dan Smith, Executive Vice President and Head of Regulatory Affairs at the Consumer Bankers Association
Ready to kick-start your open finance strategy?
Plaid’s suite of open finance solutions help financial institutions of all sizes build secure, reliable, permission-based data connectivity for their customers in as little as six to eight weeks. Core Exchange enables API-based data sharing in alignment with the Financial Data Exchange API specification, while Privacy Controls enhance customer connectivity with flexible data privacy tools. Together, these no-cost solutions can help organizations to stay ahead of the curve, maintain account primacy, and adapt to a changing regulatory environment.
Join the 2,100+ institutions like MSU Federal Credit Union, who have committed to utilizing API integrations with Plaid.