Open banking: the lucrative benefits for smaller FIs and fintechs (VB Live)
Presented by Envestnet | Yodlee
Open banking is a global trend changing the way financial data is accessed and shared in the U.S. Learn about the benefits this new and growing open banking ecosystem offers for FIs and fintechs positioned to leverage it when you join this VB Live event.
“One of the biggest changes coming with open banking is in how transaction data from user end accounts gets aggregated,” says David Nohe, CEO of the fintech company FinGoal. “We’re going to see a significant transition from the old paradigm of what was essentially screen scraping, or a host of one-off connections, to standardized APIs and data flow. And that’s a great stride forward.”
Right now, the smaller financial institutions — and there are about 10,000 small credit unions and community banks spread across the U.S. — are struggling with user data. For many of them, a user might link their accounts, and two weeks later that link is broken because of the lack of open banking APIs
“We’re very much looking forward to a world where that’s not the case anymore,” Nohe says. “Now those data streams can be standardized and become a lot more reliable, the data can move faster, can be cleaner — and costs go down.”
Currently, many bank and credit union customers are beholden to their core providers, which have their data locked up behind a wall. The banks themselves have to pay every time their own data gets accessed, which makes it harder for vendors of that bank to partner with the financial institution in order to provide new, innovative solutions.
Even if the bank wants to use data in innovative ways it might be unable to because of incompatible or out-of-date technology, or it may be cost-prohibitive to implement.
For example, a bank might have just three branches in a small college town and want to implement a new technology that could help it originate more mortgages. But as Nohe explains, “If that small bank wants to implement that tech into their stack, it would speak with its legacy core banking vendor, and that vendor will say, ‘Okay, that will cost $75K to get started, for us to open up the data,’ and then there will be some ongoing costs.”
These smaller community banks and credit unions might only have 10,000 or 15,000 accounts, Nohe says. For these folks, that’s a lot of money. It translates into the cost of two bank staffers for them in order to potentially originate a couple of hundred more mortgages a year. They can’t do it.
“With open banking, all of a sudden a lot of those implementation costs go way down, enabling a ton more innovation at even the smaller institutional levels,” he explains. “With more innovative solutions available for more financial institutions, that’s going to benefit more end users too.”
The standardization that’s going to come from open banking will also speed up more technical implementations. Right now, a financial institution might have to build about a dozen different standards in order to be compatible with the U.S. banking industry, and that’s just in the U.S. The hope is that in the move toward open banking, that number will go down significantly — if not to a single standard, then maybe it will go down to two or three — which reduces development costs any time there’s a new feature set you want to bring to market.
For fintechs, now is the time to assess their open banking readiness, Nohe says, to prepare for the surprises that are going to come down the pike.
“The biggest impact that open banking is going to have on fintechs, that they might not be thinking about, is the increased scrutiny when accessing data,” he says. Fintechs are going to have to go through a level of infosec (information security) due diligence to ensure that they’re being good stewards of the data that’s shared.
“That’s important — it’s a maturation of our market that needs to happen, especially if we’re going to get these risk-averse, historically slow-moving FIs on board with some of the innovations that we’re trying to bring to market,” he says.
“This also means that a fintech can no longer get away with security shortcuts. It’s important to get expert advice to ensure that when you’re designing your stack and architecting your data security measures, your decisions now will make it easy to check the infosec boxes when they start to be enforced,” Nohe advises.
As things go live, what you want is innovation; you certainly don’t want to be refactoring your entire backend applications in order to maintain your business a year or two from now.
Don’t miss out.
Attendees will learn about:
- The current open banking movement in the U.S
- How open banking enables innovation
- Ways to manage data security, privacy, and risk
- The benefits of API-based data-sharing
- How to assess your technology for open banking-readiness
Panelists:
- David Nohe, CEO, FinGoal
- Susan French, SVP, Head of Product and Client Operations, BBVA Open Platform
- Brian Costello, VP, Data Strategy and Strategic Initiatives, Envestnet | Yodlee
- Evan Schuman, VentureBeat (moderator)
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