Open banking initiatives are underway around the globe – from the United Kingdom and Europe to Australia, India, Africa, the Middle East and now, officially the United States, with the Consumer Financial Protection Bureau’s Advanced Notice of Proposed Rulemaking and President Biden’s Executive Order encouraging federal open banking regulation.
While the goals of these respective initiatives can vary, and the participation requirements may seem daunting, at Envestnet® | Yodlee®, we see open banking as a naturally evolving step towards the commercially constructed ecosystem we started building 20 years ago. Namely, regulatory certainty providing FinTechs a massive opportunity with innovative solutions that help consumers and small- to medium-sized enterprises meet their financial, and therefore, life goals by engaging with these solutions with their financial data.
The shift towards data sharing
Open banking is part of a larger trend where consumers are expecting hyper-personalized experiences to help them live better lives, whether its shopping, entertainment, or financial services. They know these experiences are made possible, in large part, by data about their behaviors and preferences, and they are willing to share this data provided there is no risk to them. According to an Accenture report, 67% of consumers would share more data with banks in exchange for something of value in return, such as personalized advice, better pricing or another benefit.1 Gen Y are even more comfortable with sharing, as the same Accenture report found 85% of 18-24-year-olds would “trust a third party to aggregate their bank data”.1
May the best app win
Worldwide investment in FinTechs reported through October 2021 was $91.5 billion, almost twice as much as 2020.2 FinTechs are all racing to create new customer-centric financial products and services that allow people to make better decisions about purchases, transfers, payments, and investments. And consumers are putting their trust in FinTech to do it (as long as their security concerns are addressed). For example, PayPal’s open digital payments platform gives 392 million active account holders the confidence to connect and transact online, on mobile devices, and through apps.3 Acorn’s micro-investing service has over four million active account holders and is now offering bank-like services.4 The bottom line: consumers are becoming more comfortable with digital payments, data aggregation, and financial products provided by neobanks.
Challenges for FinTech developers
Clearly there’s much interest in open banking but there are still problems that could hamper the success of FinTech firms:
- Data availability: On-demand access to customer financial data makes all the innovation possible, yet even with the progress made in the creation of both open and partnership-based application programming interfaces (APIs), securing comprehensive, uniform, and high-quality customer data remains a challenge for developers.
- Security and compliance: Consumer trust is a central component to customer adoption rates, which is why developers need to focus on security and regulatory compliance during the creation process.
- Continual improvement: Once developers have built these personalized financial services, they’ll need to continue improving the experience to keep the level of engagement high.
Solution: Partner with the right data aggregator
APIs are the technical foundation to the open banking and FinTech ecosystems, providing FinTechs with the plug and play solutions they need to quickly fashion relevant and intelligent apps and solutions. Data aggregation companies offer ready-to-go API platforms, but not all data aggregators are the same. Factors to consider when choosing a data aggregator partner include how the firm manages and protects data, the quality and reliability of this data, their own data platform’s open-banking readiness, and the range of data-driven solutions the firm offers.
Envestnet | Yodlee: A trusted data partner
Envestnet | Yodlee provides a Financial Data Platform and APIs that address current open banking challenges when it comes to the management, reliability, and enrichment of data. We deliver best-in-class data from more than 17,000 global data sources, with unmatched scalability to bring new financial experiences to life. As one of the original FinTech companies in the U.S., Envestnet | Yodlee knows what is takes to succeed, and is a trusted expert in the industry. We’re built to help FinTechs scale as they reach for the abounding opportunities coming from open banking.
Find more information on leading-edge tools to designed to guide your solution through open banking implementation on our website.
1“The Brave New World of Open Banking.” Accenture. 2018.
4 Eneriz, Ashley. “How the Acorns App Works and Makes Its Money.” Investopedia.com. September 24, 2019.