In financial services, the push for data portability is nothing new.
Glenn Geil, senior vice president and head of payments for the Americas at Endava, told Karen Webster in an interview that the seeds of what might be termed open banking, here in the U.S., can be traced back more than a decade.
The Dodd-Frank Act, in section 1033, set the tone when it said that consumers should be able to obtain that data in usable electronic form. There has not been all that much uptake in that data portability through the last decade-plus.
But this month President Joe Biden, as reported, issued an executive order that laid out suggestions (not requirements) that the Consumer Financial Protection Bureau (CFPB) should issue rules that allow consumers access to their banking data — and that they can take that information from bank to bank, or access that data via any third-party provider they want.
As Geil noted, Biden’s order broadens the horizon of how transaction-level data can be collected and used in an age where digital platforms and FinTechs have been changing financial services in ways that could scarcely have been imagined a decade ago when Dodd-Frank came to pass.
At a high level, he said, “this isn’t about access to data only. It’s about portability of accounts and affordability of banking services.”
The topic of data portability is bound to get more traction now and will be on the top of the CFPB’s list of topics to address over the next several months.
There’s some precedence, too, across the pond, where open banking, as part of Payments Services Directive 2 (PSD2), shapes how data fuels innovation in the U.K. and Europe.
Open banking, done stateside, according to Geil, is about to a see a boon because data portability is about more than getting a PDF of a past year’s worth of transactions and sending that file over to a mortgage lender when applying for a loan. “There needs to be a service that can store that data,” said Geil, “and combine it with what’s going on now” in a holistic way that can enable the development of new products and services.
U.S. regulators and lawmakers will be able to use PSD2 as a template, at least in determining basic levels of data that need protection. Additional layers of information that can be shared with providers will require explicit consumer “buy ins” in the future, he said.
Much of the provider switching, when and if it comes, will be driven by the marketplace itself, he said, as consumers vote with their proverbial feet on which banking relationships (and banks) will provide the most value-added services. Open banking’s most basic function may lie with storing data, but another layer ties in with execution — namely, what the provider is doing with that consumer-level information.
Opportunity For Banks
Conventional wisdom may hold that FinTechs, nimble upstarts that they are, will be able to beat banks to the punch when it comes to innovation. But Geil told Webster there is plenty of room for traditional financial institutions (FIs) to build bridges to new services and build walls around others.
“They can say ‘here is your view of the banking platform, and just like a FinTech you can bring in data from multiple bank accounts from other banks.’ ” It may be true that the FinTechs get there “first” — but banks have a key competitive advantage in the trust they have built up over decades with installed customer bases that are already at critical mass. The banks have not exactly been caught flat-footed, said Geil, who stated that they’ve already been examining how to open up their data through application programming interfaces (APIs). In some ways, banks are thinking more like FinTechs than ever before, he said.
The FinTechs? Well, they could prove to be useful for banks in new product development — whether through collaboration or actual acquisitions of the FinTechs themselves.
With a read-across from Europe, he said banks here in the U.S. must try to shape a holistic approach to their consumers, rather than just attending to separate layers of banking at discrete points of the journey (access, openness, etc.).
“Wrapping this up into one project, as opposed to five serial projects is a key lesson,” said Geil.
Banks will also look toward open banking not simply as a regulatory check box that needs to be “ticked,” he said, but will seek to address specific customer-focused use cases. And that means connecting with the various aspects of daily (financial) life.
Call it, then, a greenfield opportunity for the rise of the super-app.
As has been noted in recent PYMNTS research, just under half of more than 15,000 consumers surveyed connect their banking activities to their devices. Banks can create platforms and a continuum of services to serve consumers in co-mingled or a la carte fashion.
Looking ahead, with the Biden order on the books, the regulatory “timeframe” for open banking in the U.S. is likely to see acceleration, according to Geil.
The banks are already primed and ready to go on the business side of the equation. The open banking directives will help guide them in addressing liability and infrastructure concerns (with the aid of APIs, etc.).
“The key,” said Geil, “is that banks will have to understand the consumer experience [and provide compelling offers. The trust in banks on the part of consumers] is important, but it’s not just about moving money around.”