This process has already begun in the U.S., with the largest banks striking agreements with individual nonbank financial service providers.
In late 2017, Intuit announced the aggregation of the data assets behind its Mint and TurboTax products under the single banner “Turbo.” In doing so, Intuit invited banks and credit unions to partner with them to leverage these assets—a likely harbinger of things to come.
Ben Morales, chief technology and operations officer at $2.7 billion asset WSECU in Olympia, Wash., has a similar perspective: “The ability to access your data is the key to being nimble and getting your innovative solutions to market quickly.”
Morales advises credit unions to embrace extensible APIs to push/pull data from the likes of Facebook and Microsoft—and ensure their service providers can support such capabilities.
“In some sense, CUFX [Credit Union Financial Exchange] was the precursor to open banking,” he says. CUFX is an open, vendor-agnostic, broad integration standard designed by leading credit unions and vendors to reduce the time and cost of systems integration.
Negotiating an enormous number of permutations of financial institution/fintech agreements will be a laborious and lengthy task, and fintechs will prioritize large financial institutions to quickly achieve critical mass. With few exceptions, individual credit unions lack the scale to strike these deals.
At the same time, it’s critical for credit unions to participate in open banking opportunities to keep pace with large bank competitors, especially for the tech-savvy younger demographic.
Credit union service organizations and legacy service providers are well positioned to negotiate collectively on credit unions’ behalf. The key is to ensure system flexibility. “With technology changing so quickly, you need an open system foundation for future growth,” says Pitcher.
The ability to leverage APIs—whether through custom development, as large credit unions are doing, or via a service provider—provides an avenue to level the playing field.
Open banking has clear implications for the branding and control of financial services. As markets evolve, fintech firms have dropped some of their initial swagger, looking to be friends rather than foes of financial institutions.
While lingering trust issues are inevitable, an undeniable symbiosis exists. Financial institutions are a natural source for a base of financial services customers, and they have the expertise and infrastructure to address regulatory requirements.
Fintechs bring demonstrated skill in developing applications that resonate with consumers, and are equipped to rapidly deliver such solutions.
But credit unions won’t allow themselves to become a mere back-office accounting system while ceding valuable member relationships.
The key is to protect data assets—for the good of both member and credit union—while seeking win/win opportunities with fintechs offering the potential to enhance your credit union’s suite of member services. After all, if your credit union doesn’t meet a member need, someone else will.
Morales has a straightforward approach to this dynamic tension. “Bring it on,” he says. “Let’s solve the problem together. Good ideas can help us both be better.”
While many large credit unions have explored how to leverage open banking, many mid-sized and smaller institutions have yet to prioritize the topic.
“If I were leading a smaller credit union, I’d be looking to pair with providers with robust open systems that can connect to the outside world, or look at whether they conform to emerging standards like CUFX,” says Rudolph.
One smaller institution that has gotten ahead of the trend is $94 million asset Platinum Federal Credit Union in Duluth, Ga. CEO Kabir Laiwalla is quick to draw a distinction between open banking in the U.S. and overseas.
“I think in Europe they’re going one step further in the sharing of data,” he says. “It’s going to take a long time—everyone wants a piece of that cake.”
Platinum Federal recently changed mobile platforms for the second time to take advantage of open API flexibility.
“We’ve enabled APIs for shared branching and surcharge-free ATMs,” Laiwalla says. “Right now, we’re working on payments.”
The strategy is paying off for Platinum Federal, even as it continues to provide a strong branch experience for its 1,200 small-business members—primarily retailers. “We’re growing at 20% by keeping up with technology,” Laiwalla says.
“After a recent town hall meeting, a 10-year-old came up to me and said ‘I want to bank with you’—not because his parents did but because the tech is cool,” Laiwalla adds. “That’s why we do this.”
Open banking is virtually certain to arrive in the U.S. in some form. “People want to develop their own experience, and we need to enable that access,” says Morales.
And while there’s no burning platform yet, “PSD2 will become an issue the minute we find out someone has been disadvantaged because of lack of access,” Morales says.
The question becomes, who will drive the process, financial institutions or fintechs? Recent actions by Intuit relay its intentions to play a proactive role.
Data-sharing agreements by Wells Fargo, Bank of America, and J.P. Morgan Chase make clear the largest banks’ direction. Credit unions can’t afford to play catch-up.
“Going forward, our success will depend on us thinking more about partnerships,” says Rudolph. “It will be less about partnering or opening up access because the regulatory framework requires it, and more about opening up because our members demand we do so.”