Without regulatory mandates, the Open Banking wave is crashing on the shores of the U.S. financial services (FinServ) sector.
Market pressures and more sophisticated demands from customers are calling on banks and other FinServ providers to — at the very least — digitize their offerings. Increasingly, customer requirements are also calling for integrations with one another, the ability to provide a holistic view of customer accounts across a range of platforms, elevated security, intuitive user experience and beyond.
Small business (SMB) banking, however, is often targeted as a corporate of the FinServ space that has failed to keep pace with the kind of FinTech innovations seen in consumer products. As Rho Business Banking Co-founder Everett Cook recently told PYMNTS, the lackluster banking experience SMBs face in the U.S. today can often be seen at the beginning of the business-bank relationship.
"There are a lot" of challenges in the SMB banking space, he said. "A lot of [it] starts with account opening, which is always one of the biggest pain points for businesses, and the first thing they experience."
Though being able to open a bank account online is a basic requirement for many business owners, a survey published in April by BAI found that most of the 600 business owners surveyed said they had to open their bank accounts at a physical branch, despite nearly 70 percent noting they'd prefer to do so online.
It's far from the only way traditional financial institutions (FIs) can fall short with their small business customers. According to Cook, even the FIs that decide to build a digital platform for their SMBs can struggle to address the need for intuitiveness and agility that customers of all kinds have come to expect. Traditional FIs often operate on legacy systems and infrastructure unable to adapt to small businesses' digitization needs, but those traditional players still play an important role as the U.S. banking market continues its digital, open push.
Though Rho Business Banking is a new player in the U.S. small business banking market, the company operates upon the infrastructure of partner bank Evolve Bank & Trust. According to Cook, this collaboration with a traditional player enables a FinTech like Rho to design a digital-first platform that addresses small businesses' modern-day demands, while the back-end burden of compliant and secure banking infrastructure can be handled by Evolve, allowing the FinTech to introduce its services to the market without having to become a bank itself.
This bank-FinTech collaboration is evidence of the U.S.' path toward Open Banking, he said.
"Changing attitudes and openness with banks in partnering with [FinTech firms], that's a large change in the past five years," he said, whereas five to 10 years ago, the complexity of compliance and technological integrations made such tie-ups more complicated — not to mention, banks approached the concept of collaborating with FinTech firms as working with a competitor.
Furthermore, through services provided by the likes of Plaid and others, application program interface (API) connectivity has made it much more seamless for banks and FinTech firms to integrate with each other, providing a better end-user experience — a benefit for everyone involved.
"I think it's important to work within the current infrastructure," Cook said of Rho's collaboration with Evolve, "and partner with them to handle regulatory compliance issues. The mutual benefits of banks working with [FinTech firms mean] they can focus on what they're good at, and we can focus on what we're good at."
Though Open Banking emerged with a focus on consumer FinServ, as more personal finance and banking apps relied on connectivity with users' bank account information, small business banking is quickly becoming a focus for the business model.
Rho, for example, is launching with a focus on API connectivity and bank collaboration in the spirit of Open Banking. Earlier this week, small business back-office integration service provider Codat announced a partnership with five°degrees, joining its Open Banking Marketplace to enable banks to integrate into SMBs' existing back-office accounting platforms for enhanced loan underwriting and accelerated application decision-making.
PYMNTS' September Credit Union Tracker pointed to the emergence of Banking-as-a-Service, as banks and credit unions explore FinTech collaborations to enhance their small business offerings — from lending to cash management and beyond.
According to Cook, the U.S. is slowly inching its way toward Open Banking, even without regulatory mandates, and its adoption of faster payment frameworks and payment systems will only accelerate that shift.
"The next wave of Open Banking is going to take shape when the U.S. moves [toward] faster payments," he explained.
Cook added that same-day and real-time payments between FIs will make it significantly easier for customers — including small businesses — to open and manage bank accounts at multiple institutions. With more SMBs managing money with multiple service providers, Open Banking will be a requirement to promote a positive user experience and elevated cash management capabilities.
"We're positioned for that. We build with that in mind," said Cook. "It's the long-term view to partner with the best banks possible, and to integrate that into a simple experience for the user."