Open banking will bring banks, credit unions, and fintechs together

This article was originally published in BankThink, American Banker's platform for informed opinion about the ideas, trends and events reshaping financial services. You can view the original article here.

Regulators in the U.S. might be hesitant to mandate an outright move toward open banking, but several factors are pushing the financial services industry in that direction.

For starters, 65% of bankers viewed open banking as more of an opportunity than a threat, according to one survey. Respondents believed so strongly in the benefits that 90% expect open banking to boost organic growth by 10%.

Opinions, however, diverge when it comes to execution and how financial institutions can best shape open banking to their advantage.

For example, Deloitte identified more than 820 functionalities that cover the entire digital customer banking journey: from information gathering, day-to-day banking, to the end of a customer relationship.

Currently, community banks and credit unions are unable to meet the full range of digital activities that consumers want due to a lack of digital maturity within their systems.

But this does not mean that the market is ripe for disruption by new fintech competitors. Many new fintechs actually rank lower for digital maturity than established financial institutions, because of a limited solution stack, according to the same Deloitte 2018 study.

In reality, community banks and credit unions need fintechs; and fintechs need financial institutions.

As open banking continues to evolve, both industry players will find a more streamlined environment for partnerships to form to support a cooperative and customer-centric banking operation.

Consumer preferences could push open banking partnerships into the forefront of operational strategies faster than many community banks and credit unions anticipate.

One in three customers would like a consolidated view of all of their financial accounts, even those held at different institutions, according to a survey of U.K. bank account holders. Of course, apps already exist to cover many consumer demands. About 1/3 of banking customers surveyed said they are already using at least one financial app.

However, without direct access to banking data, apps and online services that help consumers streamline financial management are inefficient and sometimes risky.

Open banking, on the other hand, supports direct data sharing between fintechs and financial institutions through open application programming interfaces, or APIs. In this environment, multiple providers could securely share data with the bank or credit union to provide white-labeled services that meet customer needs.

However, only 26% of bankers recently surveyed said they feel ready for open banking. And 61% said they are looking at significant IT changes to make it happen.

This is another area where financial institutions could easily benefit from fintech partnerships by using third-party technology to adopt open API functionality.

Banks and credit unions can also partner with larger fintech service providers to co-create APIs. Such an approach can also involve third-party partners to help develop products that the financial institution can later offer to customers.

Through these partnerships, financial institutions can also offer support services and applications that customers are already using, streamlining both the banking journey as well as financial management as a whole.

Early adopters of open banking will see the biggest advantages. For community banks and credit unions, partnerships are the best option toward realizing first-adopter status, along with all of its rights and privileges.