Open banking is coming to the U.S. Although this claim is now approaching conventional wisdom, the consensus extends no further.
Diverging views abound on how soon it will arrive, its effect on traditional financial institutions, and, in some cases, even what “open banking” means.
But one thing is certain: Credit unions must prepare for open banking’s impact on member relationships and competitive positioning.
Broadly defined, open banking is the ability for outside parties to access banking information to deliver services to shared customers.
Precursors have existed for decades—think of products like Quicken and Mint, which requested consumer login credentials and/or resorted to screen scraping to populate their data-dependent offerings.
More recently, Venmo and PayPal have leveraged bank account capabilities to craft front-end experiences that some consumer demographics—particularly millennials—find highly appealing.
Now, extend this concept to a “plug and play” landscape in which nonbank fintech firms or competing banks can link into financial institution data systems to extract information, combine it with other sources, and create products addressing all manner of consumer and small- business needs.
This prospect is both exciting and scary.
History has shown app developers are capable of spurring customer engagement far greater than members have ever adopted with banking apps. Such hybrid solutions—addressing needs we might not yet even be aware exist—have the potential to foster more intimate relationships with members.
But you also have the offsetting fear that financial institutions could become distintermediated in the process, relegated to back-office “plumbing.”
Many credit unions are buying into open banking’s potential, perceived risks notwithstanding.
“We understand the need for open banking,” says George Rudolph, senior vice president of operations and technology for $8.2 billion asset Alliant Credit Union in Chicago and a member of the CUNA Technology Council executive committee. “Our members are probably best served when they have access to best-of-breed front-end services, and some of those might not necessarily be provided by us.”
Alliant’s online-centric service model heightens the stakes for the credit union to stay ahead of the curve in its digital offerings.
“We’re lucky that we do a lot of our own development,” says Al Pitcher, Alliant’s vice president of technology. “We develop customer-facing tools ourselves because of our small branch footprint.”
Such data access often is made possible through application programming interfaces (APIs), which are standardized conduits through which information can be provided in a prescribed format.
“We can get insights through APIs on which services our members are and aren’t using,” Pitcher explains.
Companies like Plaid have emerged to support libraries of published APIs enabling this process.
The credit union member experience carries personal resonance for Zach Perret, Plaid CEO/co-founder. He grew up in North Carolina using a credit union “and I loved it. But when I entered the working world I had to switch to a big bank because I found that my credit union account didn’t work in the places I needed it.
“When building Plaid, we made a big push to ensure consumers don’t have to make that same tradeoff,” he continues, “and can still access the financial products they need no matter where they choose to bank.”
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