FI Execs Curb Their Enthusiasm for Open Banking

open banking fraud

Open banking, the legal framework permitting secure data sharing amongst financial institutions (FIs) and third-party FinTechs to enhance the products and services they offer consumers, has proven to be popular with both regulators and consumers.

But when FI executives were asked about open banking, the reviews were mixed. 

As PYMNTS Intelligence found in compiling “How Fraud Fears Impact FIs’ Adoption of Faster Payment Solutions,” several factors — including assets under management and especially incidents of fraud — appeared to shape how receptive an FI was to open banking.

Overall, the report, which was based on surveys with 200 FI executives, found that 46% of FIs said the risks of supporting open banking outweigh any benefits. Meanwhile, 35% said the opposite is true.

Smaller FIs appeared to be more receptive to providing open banking-supported services, with nearly 2 in 5 saying the benefits of doing so outweighed any risks. Conversely, more than half of the largest FIs surveyed — those managing more than $100 billion in assets — said the risks overshadowed any benefits.

One takeaway from these findings is that smaller FIs likely see their support of open banking as a competitive differentiator. Larger FIs, meanwhile, simply have more to lose.

How fraud impacts FIs open banking risk calculation

The prospect of losses weighs heavily in the open banking debate. PYMNTS Intelligence’s data showed concerns about fraud were a major determinant in whether FIs were open to open banking or not.

Where 46% of FIs in general said open banking risks outweighed any benefits, for institutions that saw an increase in fraud volumes, the stakes appeared to be higher, with 57% of them saying the risk of open banking was too high. But 45% of those FIs that experienced a decline in fraud volumes felt the same way, saying the risks outweighed the rewards.

With 62% of large FIs reporting increases in financial crimes, it’s little wonder that FIs, especially larger ones, are reluctant to fully embrace open banking at this time.