The views and opinions expressed in this article are those of the thought leader as an individual, and are not attributed to CeFPro or any particular organization.
Allan Rayson, EVP, CTO, Chief Innovation Officer, Encore Bank
Open banking provides incredible opportunities to enhance the customer experience, but it’s important to understand the challenges and complexities from a data ownership and privacy legislation perspective. In this first part of our series on Open Banking, we’ll explore the challenges of connecting Fintech’s through open banking technologies. Many banks (especially community banks and smaller regional banks) in the U.S. have not invested in the right technology architecture to power “open banking” technologies. Further, many are not aware of the possibilities that exist with the right architecture. Open Banking in the U.S. truly does start with the right API infrastructure that allows a bank to efficiently pass data to and from the bank “core” – things like customer and account data, transaction data, loan data and much more. Ideally, many more community and small regional banks will make the investment necessary to modernize their API infrastructure. There are many ways to accomplish this, but unfortunately most banks have historically relied on their core provider to provide these integration services. There is a much more efficient way of a modernizing a banks API infrastructure through an API gateway or Enterprise Service Bus technology architecture.
In the second part of our series on open banking, we’ll discuss how open banking can enhance the customer experience. Banks typically have 12-15 different “products” they offer to business owners and individual consumers. These include commercial lending, commercial deposit gathering, consumer lending, consumer deposit gathering, treasury, interest rate derivatives, foreign exchange, SBA, mortgage, auto and other niche products. It’s very difficult for a bank to run all these very different products effectively offering the best customer experience possible. Alternatively, Fintech’s typically only focus on one or a much more limited product set and typically deliver better products with a better experience. Open banking is by design better from a customer experience perspective as a result. So long as banks and Fintech’s work together to develop the right solution that not only meets the customer needs, but also adheres to important regulatory guidelines.
In the third part of the series, we’ll discuss why it’s important to develop clear guidelines on data ownership. Data ownership is so important and has received so much attention over the last few years with GDPR in Europe and with Congress taking actions to strengthen data privacy in the U.S. Data ownership is often an extremely complex topic however, and banks are often in the crosshairs given the amount of data they typically collect to underwrite a loan or open a bank account. Banks and financial institutions must work to manage the complexities of managing data, prioritizing the security of data, but still delivering an exceptional user experience. This is obviously not an easy thing to accomplish.
Privacy legislation and regulatory scrutiny as it relates to Fintech activities is certainly expanding. In my view, this has the potential to be a good thing as “rules of the road” are being established. Business tends to thrive in environments with less uncertainty around legislation and regulation. It’s clear the “rules of the road” are still being developed, which will serve to provide more momentum to the business community as more and more open banking products are being developed.
In the last part of the series, we’ll discuss how open banking will develop over the next 18-24 months. Open banking and embedded banking is an ever-changing landscape. As we discussed, regulatory scrutiny is expanding, and additional “rules of the road” are being established. Fintech has made a significant impact on consumer activities over the last 5-10 years and over the next 18-24 months the focus more than ever will be in the commercial and business payments space. I expect to see more and more Commercial Fintech evolve over the next 18 months at a rate we’ve not seen in the past. Commercial Fintech has been virtually untouched, but now business owners want the same innovations they’ve seen in the consumer space migrate over to the commercial side. So, stay tuned because there is more to come!
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