While regulatory mandates have driven steady progress in open-banking in the US thus far, recent months have seen the Consumer Finance Protection Bureau make the case for a Personal Financial Data Rights Rule (PFDR). The Rule will mandate banks to share customer data with qualified third parties via APIs and will be a boon for open banking in the US.
Until now, companies have been (with varying degrees of success) trying to deliver open banking alone. As regulatory and federal momentum picks up in 2024 however, this is about to change and the US could be about to find the sweet spot where tech and regulatory momentum converge.
In this brave new world, banks will need to innovate or collaborate to compete with fintechs, especially when those fintechs are newly empowered with customer data. The lesson from jurisdictions where open banking has made greater inroads is that business shouldn’t wait for the regulatory stars to align. The customer demand for open banking is already there, and the finance businesses with an eye on the future should be delivering open banking now, pre-empting the PFDR.
The fact is that there are many parts to the open banking puzzle, with regulation being only one of them. Beyond regulatory mandates, tech providers are also pushing for more open banking. Tech companies see the value that a single customer view brings and the way customer expectations are changing as a result. As such, tech is pushing for a much faster pace of innovation and adoption and we see this reflected in growing recruitment in the data space.
As our recent Bank to the Future report detailed, banks are taking many different approaches to this challenge but the option of standing still simply won’t be an option if 2024 is the year that open banking takes off in the US.
So, as open-banking gathers pace, how can US banks draw upon the experience of counterparts in the UK and Australia to accelerate success?
Revolut is a great example of a business that got ahead of the curve and is now a UK success story and one of the world’s leading fintechs, powered by seamless account to account (a2a) payments. Revolut owes much of its success to having been quick to realize the potential of open-banking facilitated a2a payments. Now, Revolut processes more than $330 million in monthly transactions, rivalling mainstreet banks.
The lesson? Don’t make the same mistake as mainstreet banks made in the UK and wait for the regulators, if you do, you may well fall behind competitors who aren’t so happy to wait.
This is another business that started building for open-banking early. In so doing, TrueLayer has positioned itself as the middleware connector layer in open banking and become an essential part of the open banking ecosystem and, by extension, the future finance sector. Despite the modest total sales of £4.14 million, TrueLayer's revenues increased by 56% in 2022, and payment volume was 2.8 times higher than the previous year. Around 10,000 developers are creating services based on open banking standards through TrueLayer which is again indicative of the latent demand that exists for open banking for those who are willing to deliver it.
Beyond finance too, we see open banking solutions being applied in the UK. Energy businesses for example are using a2a payments making it easier to interact with end customers through this enabling tech. Ultimately, non financial businesses will be attracted to open banking for the same reasons as finance businesses; better customer experience and smarter uses of data to drive efficiency and customer service.
So, while the PFDR will no doubt be a boon to open banking in the US, the lesson from elsewhere is to not be bound to waiting for the right regulation, but to push ahead and deliver the innovation and customer focus that is increasingly central to banking in the twenty-first century. Regulation will be a tipping point, but banks should act now.
While the regulation hasn’t quite been there until now, savvy tech and finance businesses have been quietly building single-data infrastructure in the background in readiness. 2024 could therefore be the point where regulation and tech aligns to take open banking in the US beyond excited speculation, and into the lives of consumers and businesses across the country.
