According to Link Money CEO Eric Shoykhet, open banking in the United States is taking shape but needs some education in the mix to reach its full potential.
“We’ve already seen the development of a lot of the core infrastructure that’s necessary to facilitate open banking, whether that’s data aggregation or actual money movement,” he told PYMNTS.
The market approaches have been markedly different, he said. In Europe, for example, the rise of open banking has rested on government mandates; in the U.S., open banking has as its tailwind the innovations of FinTechs and other innovators who have found that screen scraping is a suboptimal method to gather information.
Screen scraping — which collects data from an application and webpages — may have been a way for firms to get account data and information loaded into these FinTechs’ products and services, he said.
“But it doesn’t lead to consistency in data quality — and it’s not secure,” Shoykhet said.
In response, banks created what Shoykhet termed “the bedrock infrastructure for API-based access to account information and data.” For the banks, offering that access is a way to create additional revenue streams, while improving end-user control over data security (and access). Through standards such as FDX and OAuth APIs, it’s become easier to “pull” in account-level data from banks in the U.S.
Europe, he noted, has done a “good job of setting up the guideposts” surrounding open access.
Asked by PYMNTS whether open banking’s evolution in the U.S. will be consumer-driven, or whether providers will have to create a slew of offerings in a sort of “build it and they will come” progression, Shoykhet contended that for now, open banking will be “offering-driven” because “consumers in a lot of cases don’t understand — or even know — about the solutions that either they’re looking for or that some of these things are possible. So, ultimately, I think it’s going to be up to the key infrastructure providers and people in the value chain to push open banking-related use cases and products.”
Against that backdrop, pay-by-bank is gaining a wider embrace in the states and serves as a merchant-driven example of how change can come to commerce (and financial services). Merchants are pushing pay-by-bank because they have a strong incentive to lower their payment processing costs by as much as 70% or 80%, he said.
From the consumer side of commerce, there continue to be macro factors that will illuminate the benefits of open banking, he said. High interest rates, specifically on credit cards, are pushing consumers to shift to debit transactions and opt for the seamless pay-by-bank checkout offerings that (with the help of providers including Link Money) are linked to mobile apps and biometrics.
As he observed, with Europe’s and Latin America’s experience as a harbinger — where pay-by-bank and other methods have been successful in countries such as Brazil — “payments tend to move from expensive methods to lower-cost methods over time.”
Linking accounts to enable other use cases will help financial service providers and disruptors find new ways to look at creditworthiness beyond FICO scores and ultimately expand financial inclusion over the long term as payments are done in real time in the U.S., he said.
With Europe and the rest of the world offering signs of what’s possible stateside, Shoykhet said, “I really believe in the U.S. we’re going to see the exact same trend. It is just a question of the shape of the curve of adoption.”
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