Here’s a daunting task: deliver best-in-class digital services while reducing operating costs. Leadership teams are all too familiar with having to find innovative solutions to business problems while maintaining the integrity of consumer data, abiding to budgets, and operating within the constraints of the banking industry, one that is highly regulated and historically opaque when it comes to transparency.

For FinServ businesses, the solution may lie in uncharted territory: Open Banking.

What is Open Banking?

Open Banking is the use of Open APIs to enable third-party developers to build applications and services for FinServ providers. The idea is to take advantage of the plethora of data that financial institutions collect by allowing the data to fuel the creation of more seamless financial transactions and interactions for customers across banking institutions.

This poses many opportunities, challenges and concerns for banking customers, but this level of open innovation is already a mainstay across the technology industry. If you have made an online payment through a service such as PayPal, Shopify, or even the CRA, it was likely made possible by a derivative of the type of data sharing that will empower Open Banking.

Open Banking is already coming into effect in the UK and it won’t be long until it becomes a larger conversation here in North America. As of January 2018, the UK’s largest banks will be required to provide third parties access to their data as part of the Payment Services Directive 2, also known as PSD2. The Open Banking Standard, which is leading and regulating the Open Banking movement in Europe, says that, “If implemented effectively, open banking will unlock innovation that will transform and improve the customer banking experience.”

Many FinServ providers have expressed enthusiasm over Open Banking.

“Open Banking gives us the opportunity to access a hugely rich source of real-time data,” Christophe Rieche, CEO of Iwoca, a small business loan company, told WIRED. “It’s liberalising access to data that’s previously been monopolised by banks which have failed to innovate.”

Regardless of location, the Open Bank Project says that Open Banking allows, or will allow, FinServs and FinTechs to:

  • Offer a wider range of web apps and mobile apps to customers
  • Reduce integration and maintenance costs for new applications
  • Achieve better data control and security for the end-users
  • Leverage a growing community of developers and deploy new apps instantly

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Open Banking in North America

While the UK is the first to begin implementing Open Banking legislation, financial institutions are taking steps to introduce Open Banking concepts in Canada and the United States.

Numerous banks are beginning to take action to share data with financial technology companies, and digital-first organizations are already off to the races. Robo-advisors are a great example of this, but they’re just the start. Here are a couple additional examples of Open Banking innovation across FinTech:

  • Capital One, one of the first to truly open APIs, has launched a full-fledged developer platform
  • Citi Fintech has exposed 49 APIs to eight different countries and over 200 prototypes have been built by developers

I often hear people ask, Who will win Open Banking? The incumbents or the challengers?

Perhaps I’m an optimist, but I believe there is room for both to succeed. However, it is the incumbents that have the relationships and they’ll have a window of opportunity to deliver something good. Open Banking will allow their technology teams the access they need to rapidly respond to customer demands by transforming current offerings and driving innovation. They have the opportunity to show challengers the potential of Open Banking for business success and customer satisfaction and retention.

Digital-first services are likely to offer increased value to consumers, and collaborations are possible between companies to deliver the best results for customers. Not to mention, these Open APIs are far more secure than the old method of entering account information manually. They can serve as a unique way to increase customer engagement and attend to customer needs in a secure, agile, and innovative way.

Embracing Open Banking, or at least considering how it can play into the services you provide your customers, is one way to future-proof your organization by delivering services at the speed and consistency your customers expect.