The Open Banking business model has derived mixed reactions from the financial services market, and without a regulatory mandate in the U.S., it’s not entirely clear how deeply the data sharing strategy will proliferate.
What is clear, however, is that Open Banking is gaining traction, largely driven by the competitive pressure for banks to enable their customers with the FinTech tools they demand. It’s a delicate balance; in some ways, FinTech firms and banks are competing, but many FinTech firms rely on bank account data to provide the level of service that end users have come to expect.
While Open Banking may seem like the obvious answer to the demand for data integration between banks and FinTech firms, the complexities of the U.S. banking industry, as well as the inconsistencies in digitization, make the path toward ubiquitous Open Banking even more uncertain.
Sam Bobley, co-founder and CEO of data digitization technology firm Ocrolus, recently spoke with PYMNTS about what the financial services industry can do today to prepare for the Open Banking future.
“We all dream of a utopia where data can be shared freely from one company to another in a totally frictionless and digital fashion,” he said. “And I think, ultimately, we will get there. But the question is, what kind of steps and [technologies] and tools do we need to drive that digital transformation?”
Meeting In The Middle
As Open Banking spreads in the U.S., companies like data network Plaid — which is partnering with Ocrolus — have found a lucrative market opportunity to enable that connectivity between a FinTech platform and a consumer’s bank account. While these services are critical in driving Open Banking adoption, they fail to address a key hurdle to that progress: the continued use of non-electronic data.
In banking today, so much information continues to be shared and collected via PDFs, Excel spreadsheets and even cell phone images. While these vehicles are technically digital, recipients often lack the technology to turn an image of data into actionable electronic data.
Furthermore, noted Bobley, with such a prolific and fragmented financial services market in the U.S., smaller players often lack the resources and infrastructure necessary to embrace data scraping and data aggregation technologies.
The current level of technological sophistication for those data collection tools is far from perfect, too. Bobley pointed to optical character recognition (OCR), a technology that may provide a solid starting point to digitizing data extracted from an image — but can yield high error rates (particularly as image quality declines), the failure to contextualize that data and a heavy reliance on manual processes to address issues of data that cannot be read, understood or extracted.
Elevating Data Extraction
In today’s market (where Open Banking is driving bank-FinTech connectivity, but a continued use of paper limits the scope of that data integration), Bobley said he has found that financial services providers are turning to a mix of solutions to support data scraping, aggregation, integration and extraction from documents and images.
Ocrolus deploys a solution with integrated machine learning and proprietary algorithms to address OCR’s shortcomings. However, the company has also acknowledged the need for clients to use Ocrolus technology in conjunction with other data integration service providers. Earlier this month, the company launched Ocrolus+, a service that enables clients to deploy Ocrolus and Plaid via a single API to ingest data — regardless of format or quality — and extract accurate, digital data.
With fraud and data security as critical components to the success of Open Banking, Ocrolus+ also collaborates with identification fraud detection solutions provider SentiLink.
A Gradual Evolution
The “bread and butter” of Ocrolus’ offering, said Bobley, is in loan underwriting, enabling lenders to obtain information from borrowers in a variety of formats, as well as digitize and validate it. Yet, as the technology expands, and as the appetite for Open Banking data functionalities grows, Bobley pointed to other applications of the tool beyond loans, mortgages and small business financing.
Some of the digital lending platforms already using Ocrolus, for example, also offer factoring products that opened up the opportunity for Ocrolus technology to automate data extraction from invoices, not just bank statements. There are potential applications for the tool in accounts payable automation as well, he said.
More use cases will undoubtedly emerge as banks, FinTech firms, consumers and businesses grow more comfortable with the concept of sharing data between platforms for elevated financial services experiences. The current ecosystem, noted Bobley, offers an opportunity for businesses.
“By leveraging platforms like Ocrolus, in concert with data aggregation services like Plaid, you can drive faster [toward] digital transformation, even before regulators get there with Open Banking mandates,” he said.
Along that journey, the demand for data integration services will also grow, but service providers cannot leave behind the data that has historically remained siloed within paper and digital documents like PDFs. What’s important for the market, Bobley added, is for industry participants to prepare for the future by addressing the biggest friction points of today.
“Folks want to jump to the year 2050, and I would love to, too,” he said. “But there are steps to get there.”