How US Carves Its Own Path To Open Banking

While open banking frameworks and initiatives have slowly trickled throughout the U.S. financial services system, the landscape is nowhere near as developed as in other markets like the U.K. in which open banking regulatory mandates have accelerated the unlocking of bank data.

Yet, as it has done in so many other areas of financial services, the pandemic has created a market climate in which banks, FinTechs and other service providers have an opportunity to embrace the application programming interface (API)-powered open banking model.

Speaking with PYMNTS, Scott Purcell, CEO of financial institution (FI) Prime Trust, described the factors opening up the door to open banking in the U.S., and why market events like the pandemic will likely be far more effective at open banking proliferation in the country than waiting for legislation to catch up.

“The pandemic has put more focus than ever on the need for financial services,” Purcell said. “The only way that FinTech innovators can deliver those is via API integration into a financial institution.”

From his vantage point, he said there has been a “continuous stream” of technology firms seeking integrations and signing new contractors for collaboration, in part thanks to the heightened sense of urgency to develop new products and services that can meet the needs of consumers and businesses working in remote settings.

For small- to medium-sized businesses (SMBs) in particular, there are several opportunities for open banking models to improve the customer experience and strengthen SMBs’ ability to continue operating with minimal disruption.

“For [SMBs], the applications being built on open banking rails will provide new, better banking,” explained Purcell, highlighting key targets like sending and receiving payments, as well as organizing financial ledgers and transaction history, with implications to strengthen accounting and treasury management workflows by unlocking financial data and integrating it directly into SMBs’ systems.

“Friction is being reduced, and new ways of engaging with financial institutions are taking form, which provide new and improved financial services,” he said.

But Purcell isn’t the first to highlight the opportunities that open banking could bring to the U.S. market. Indeed, many FIs in the U.S. have already thrown their weight behind the framework.

Earlier this year, for example, U.S. Bank executive vice president Gareth Gaston discussed the opportunities for APIs and open banking to address the particular pain points of B2B payments.

“Open banking integrates solutions into a seamless experience for business-to-business clients, and they can then use however many providers or solutions they would like rather than necessarily being married to one,” he told PYMNTS in July.

In addition to streamlining payment flows and having the opportunity to develop value-added solutions on top of those integrations, FIs and FinTechs can also gain richer insight into their customers’ needs through unlocking and interconnecting data.

While the U.S. has made headway in its open banking journey, there is still a long way to go. And as Purcell predicted, unlike European markets, it’s not legislation that will drive the market forward.

“European-style legislation that truly opens the banking ecosystem is a long shot,” he said. “The U.S. has too many entrenched interests that fiercely oppose a democratized, open system.”

That’s not to say the open banking future is doomed for the country. Rather, through bank-FinTech collaboration, and through technologies like APIs to facilitate data integration, the U.S. can carve its own path toward open banking and still achieve valuable results.

“Disruption of the banking status-quo has already been happening,” added Purcell, “and it’s now accelerating.”