Among the key trends in financial services in 2024 — as will be the case for the next year (and beyond) — has been the shift to open banking.
The premise and the promise of open banking is this: Individuals have the ultimate control over their financial data, including account-level data. They decide who gets to see that information — and how that information is ultimately employed by the financial services and products they are offered and use in everyday life.
The trend, then, is one toward personalization, where banks and FinTechs compete for customer loyalty, harnessing that data to extend credit and underwrite decisions in real time, or verify identities, or speed account-to-account payments.
APIs are at the center of it all, enabling the points of connection between providers and all of that permissioned data.
In the U.S., as PYMNTS Intelligence found earlier in the year, 46% of consumers said they were interested in using open banking for at least one product or service. But at the same time, as other reports showed, a commensurate percentage of FI executives said that the specter of fraud and other risks outweighed the benefits of providing those services.
The latter half of the year saw the Consumer Financial Protection Bureau set rules governing the collection and use of personal financial data in banking, in payment apps and in digital wallets. There’s legal wrangling over the rules, and the CFPB is looking next to create standards through a body of stakeholders that will help set a roadmap to accessing the data.
At a high level, the real-time insight that comes with transaction and account information can help lenders extend loans that are better underwritten and broaden financial inclusion. Sharing the data with third parties will also let customers pick and choose among providers while accessing that broad range of financial offerings through the points of contact they prefer.
Given the fact that only about 11% of U.S. consumers have used open banking payments, the upside is significant. There are some encouraging signs to help open the floodgates, as PYMNTS Intelligence has found that 82% said they have been satisfied with those experiences.
A key use case will be pay by bank, which enables money to move directly between accounts.
The PYMNTS Intelligence Report What Consumers Need for Pay by Bank to Catch On, in collaboration with Trustly, describes four consumer personas based on their interest in pay by bank: early adopters (6.4%), interested consumers (17%), intrigued consumers (22.4%), and resistant consumers (54%). Notably, younger generations are driving interest. Among Gen Z, 25% express eagerness to use pay by bank, while another 23% are intrigued. When consumers are presented with cash-back discounts or loyalty benefits, overall consumer interest surges by 72%.
We’ll also see further innovation in embedded finance as lending and other products pop up within non-financial applications. PYMNTS has detailed how 41% of FIs have already implemented embedded finance solutions. In addition, 79% of banks worldwide expect banking to become deeply embedded in daily consumer and commercial activities.
