Open Banking: Are Banks and Credit Unions Ready for the Future—and Beyond?
One of the most stable, enduring industries you can name, at least in the developed world, is finance and banking. But there’s a major disruption coming, in fact, it’s already landed. Open Banking is revolutionizing the industry and threatening traditional banking models. At its most basic, this new model requires financial institutions to provide third-party access to customer account data with secure and open APIs. So, if you’re a financial institution that’s determined to stay relevant and willing to transform your platform to do so, and one that’s eager to be more customer-centric, open banking should be of great interest to you. And you won’t be alone.
Open Banking was driven by the European Union’s (EU) initiative, which adopted the revised Directive on Payment Services (PSD2) in 2018. These regulations were set in place to protect consumers and provide strong authentication for secure payments and transactions. Open Banking was developed to provide more innovative services and products. It’s revolutionizing the consumer banking system by using secure APIs that share consumer data with—and this is key—customer consent.
Many countries are beginning to have a heightened awareness of Open Banking due to the benefits it provides. It’s driving a multitude of exciting opportunities for banks, credit unions, and fintech companies across the globe. Ultimately, Open Banking can help drive customer experiences, as well as revenue opportunities.
Digital transformation and consumer expectations
The COVID-19 pandemic has done more than anything else to force the rapid, digital transformation of the world’s industries and organizations. Everyone, from 100-year old companies to local bookstores, has had to pivot to new and expanding digital platforms and ecosystems. And although they’re no stranger to technology, the financial services industry is no different here. The technical edge that Open Banking gives to finance is in streamlining the customer experience and reducing customer friction, with no loss to security.
The security element is a large piece of the pie for institutions and consumers. And it’s only a matter of time before consumers start catching onto the benefits. Open Banking provides strong authentication and security in an end-to-end digital architecture. The ability to safely tie a user’s accounts together and securely access their financial information (this can include, not only banking but, mortgage information, investments, and much more) in one place, will continue to impress consumers and gain momentum. Ultimately, these benefits mean faster, more streamlined services that, finally, make customer experiences with their financial institutions intuitive and frictionless.
Breaking the traditional mold
Older institutions, banks, and credit unions are used to operating in a more traditional, locked, and controlled environment, where they have full control over all their customer data. However, to keep up with the quickly evolving landscape, the increased digitization of services led by Open Banking will force financial institutions to closely analyze many standard processes and procedures they currently have in place.
In essence, resisting change will no longer be an option for financial institutions — no matter what region they’re in or which regulations are coming their way. They’ll need to strike a balance between modernizing and holding onto any traditional processes that still work for them. Success translates to a more modern strategy that:
- Enables a frictionless user experience that includes a transparent, streamlined journey with dashboard-level control over solutions and data preferences.
- Provides stronger, more restrictive security that includes the ability to scale and grow in a way that allows banks to be in continuous regulatory compliance.
- Adopts a technology strategy that modernizes banking platforms through collaboration with third-party providers and fintech companies.
- Invests in innovation that allows for banks to embrace end-to-end digital architecture.
What’s modernization really about? Innovation, partnership, and collaboration
Financial institutions can always partner with technology providers who offer best-of-breed services. This is true whether they’ve already started the process of developing in-house solutions and need a partner to help manage this or are just starting out in their transformation. There are innovative companies in this space who are ready and willing to bring this all to life, helping banks and credit unions confidently innovate their customer experience. They’re doing this through strong identity management but may also offer PSD2 and Open Banking solutions that meet the needs of a financial institution, as well as enhance the customer experience.
So, if you're charged with modernizing a financial institution, you don't need to know it all, nor are you on your own for implementation. Look for technology partners who are experts in this field, can offer a frictionless experience as well as the ability to govern and work with various APIs. With innovation, strategic partnerships, and effective collaboration, financial institutions are able to better access and mine the data they already own. Utilizing their existing data, they can effectively create the individualized and frictionless services their customers want, simply by modernizing into this new model.
The future is almost now, and Open Banking is only the beginning
Open Banking is just the beginning. A paradigm shift that requires collaboration and data sharing amongst organizations (providing products, services, and experiences) is in motion right now. This evolution includes the sharing of accounts and financial payment information.
We are at the forefront of witnessing an incredible shift in the landscape of how consumers access all information. This entails an Open Economy that allows sharing across industries, including e-commerce, gaming, payroll, HR, utility, healthcare, telecom—the list is almost infinite and always changing. And when the shift is complete, the convergence of data sharing will become mainstream. Being ready and able to secure all this data will be a critical trait of any successful organization.
So, these changes are already here—not sure how to start? Check out our Open Banking and PSD2 page to get the details today. Then read on to learn how Okta is helping financial services companies innovate faster and remain competitive by checking out Okta for Financial Services page.