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Money20/20 Preview: How Open Banking Expands Consumer Power

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In the run up to Money 2020 next week, I have planned a series of articles on the topic of Open Banking and in particular what it means for the API economy and APIs in general. For this I will draw on the last few years of our experience at APIContext, working with UK and European Banks, and looking at some of the challenges Open Banking presents for the banking sector.

First, I will avoid talking about technology because, while APIs are seen as something ops and engineering does, the reality is Open Banking is a business and compliance challenge first and foremost. Looking at it as a technology challenge that can be handed over to engineers misses some of the critical drivers for Open Banking. And if we believe the rumors, those drivers will be the focus of the upcoming regulation in the United States.

First and foremost Open Banking is about expanding choice for consumers. It stems from the realization a few years ago that a typical bank customer would be more likely to get divorced than to change banks, and that was, in part, due to the complexity of leaving a relationship with a bank.

The complexity of changing banks goes beyond a debit card [and in the US even to this day, a check (cheque) book!]. There will be autopayments, direct deposits, and other associations. Recreating those is not always straightforward and tends to leave consumers exhausted at even the prospect of change, let alone actually doing it.

This also leads to natural monopolies – you can’t easily get access to your own data to share with others – in the US a few, large, aggregators grew up to ‘scrape’ data from your bank to share with accountants and others. The way in which they did this essentially involved giving a 3rd party your banking credentials and letting them access data on your behalf before sending it to the third party. Apart from the risk that a 3rd party might have a breach of credentials,  consumers have questions about whether or not these parties might be doing something with your data beyond just sharing it with your accountant.

Open Banking addresses these by enshrining in law a secure and manageable way to access your data, manage who does have access and, at least for the large banks, give the consumer a way to access data and make payments without a middle-person in the mix and without you losing control of your credentials.

Emphatically this is all good AND essential for the US economy and our, frankly, backwards banking system – whether it is better point of sale systems, better payments methods or just new ways of checking credit worthiness – Open Banking can and should be transformative.

That’s the good stuff – the challenges (beyond the technical) come with implementation:

  • What standards are set?
  • Who manages them?
  • How do we make sure all the players are doing the same thing?
  • And how do you know your bank or others are meeting all the requirements?

Well, that’s where the 1033 Rule Making of the Dodd-Frank act comes in, and why this year’s Money20/20 could be one of the most important in years.

Next up – what is the 1033 Rule Making and why does it matter?

David O’Neill is the COO of APIContext and has been working in the measurement of performance and compliance of banking APIs since the start of Open Banking. He is speaking at Money20/20 on the Panel “Are you ready for Open Banking” at Money 2020 at 9:45 Sunday October 27 2024 in Casanova 501-503.

Connect on LinkedIn or email to setup time to meet.

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