The state of Open Banking in the U.S.

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The state of Open Banking in the U.S.
At its core, open banking is about empowering choice by giving consumers access to their own financial data.
Photo by Erol Ahmed on Unsplash

A Positive Outlook.

As financial service providers look toward the future, they have a positive outlook on the benefits of open banking. But they agree that there needs to be more regulation put in place, and they also see data security and privacy as the biggest challenges to embracing open banking.

Envestnet | Yodlee recently surveyed over 200 decision makers from U.S. banks, wealth management, and FinTech firms on their expectations regarding open banking in the near-term and long-term as part of their State of Open Banking Research. 92% of those surveyed agree that consumers are the ultimate beneficiary of open banking. When asked who would benefit the most aside from consumers, the majority of bank and FinTech leaders felt that their own financial services sector would be the primary beneficiary.

The research also found that half of FinTech leaders (54%) felt that they would benefit the most, and over half of bank leaders (57%) felt that the combination of global, national, and regional/community banks would benefit the most. While a quarter of wealth management leaders think open banking will benefit them.

The open banking opportunity

Virtually all of the leaders surveyed believe that open banking provides an opportunity for their organisation to leverage, with three in five seeing that opportunity as having a potentially high impact. And because of that, two thirds of financial service providers have already launched or have plans in the works to launch open banking initiatives within the next 18 months. Additionally, 56% of the total respondents have or expect to phase out screen scraping within the next 18 months.

While only one in five respondents see open banking as having a significant impact on their business in the next 12 months, that level jumps to nearly three in five in the next 5 years. As a group, 70% of FinTech leaders are expecting at least a significant impact by then.

Across all respondents, the advancement of open banking is seen as particularly important for generating new business models and revenue opportunities, strengthening customer relationships, staying competitive against market disruptors, expanding access to underserved or new target customers, and improving customers’ financial wellbeing.

Where they see opportunity, they see risk

With that opportunity as a backdrop for open banking, the leaders are also mindful of associated risk, with 83% seeing either moderate or high risk from introducing open banking. And FinTechs are the most concerned, with one in three seeing high risk while only one in five banks feel that way. Interestingly, 81% of all respondents believe that consumer financial data access and sharing could benefit from greater regulatory certainty.

When asked what the biggest challenges are in adopting an open banking strategy at your organisation, data security (48%) and privacy (39%) were identified as the top two. Importantly, less than one in ten felt that a lack of openness to partnerships was a challenge, meaning 92% are seemingly open minded to partnerships.

A bright outlook for open banking

At its core, open banking is about empowering choice by giving consumers access to their own financial data. It will give consumers the power to securely share their selected banking data with accredited third parties to improve their financial wellness and will aim to improve the consumer experience, create new products and services, and ultimately change the competitive financial services landscape. Banks are increasingly open to partnerships that enable trusted consumer permissioned access to data for consumers to share their financial information with the financial app of their choice as they seek to ultimately improve their financial wellness. While it’s great to see that financial service providers have a positive outlook on the benefits of open banking, it’s clear there is still more work that needs to be done.

Tonia Berglund – Director of Product, Envestnet | Yodlee.

Copyright © BIT (Business IT). All rights reserved.

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