Vladimir Jovanovic, Manager, Innovation, PSCU

Currently, there are many different definitions of open banking in our industry. Depending on the motivations of the reviewer, it can be defined as “an attempt to democratize financial data exchange by allowing access to a consumer’s banking and financial data.” Others will call it a “standardized approach to financial data exchange, where financial institutions have the ability to secure and control exchange of data.”

Regardless of motivations, the term “open banking” refers to the ability to share data through APIs (Application Programming Interfaces), thereby allowing third-party services access to a bank’s customer data — financial or otherwise. This, in turn, serves to answer customers’ needs in third-party apps.

A good example of this is allowing PayPal’s P2P app, Venmo, access to bank customers’ financial data for easier access to funds, or even authentication into the app and subsequent initiation of P2P transfers. There are many other examples of the fintech world requiring access to consumers’ banking data to provide a better user experience in the applications that accountholders use.

Ultimately, financial institutions must determine their willingness to open up access to their cardholder data for third-party apps – thereby providing digital experiences to customers that are not offered or controlled by the bank.

Industry Background and Perspective

The ability of fintechs to access users’ banking information proves to be an easier task today than even five years ago. Over time, and with the rise of Silicon Valley, numerous start-ups have attempted to address this need, and subsequently created API data aggregators like Plaid, Finicity, Yodlee and others. These start-ups have seen a lot of success in acting as an aggregator of financial service APIs, providing the fintech world with access to thousands of financial service businesses, banks and credit unions with one set of APIs.

This approach has been effective until recently, when the big tech companies (Google, Apple, Facebook and Amazon) began to redefine their consumer experience and expectations. Since the big four tech giants control so much of the consumer experience, seamless UI/UX became table stakes, not only for the big tech firms, but also for smaller tech companies (fintech) and financial institutions.

As consumers started expecting seamless and secure experiences, many fintechs have relied on companies like Plaid to build and answer consumer needs. However, sometimes the exchange of data was not executed in the most secure, efficient and regulated manner. There are many examples of data aggregators using the consumer’s permission to access their data in order to screen scrape data, rather than arrange business terms with the FI. In response to the practice, we have seen large financial institutions start to block third-party providers from accessing their consumers’ data, citing security and consistency issues.

Recognizing the recent shifts in consumer expectations and banking needs, as well as technological advances and ecosystems serving as one-stop shops for consumer needs, we have seen a few events in the payment industry that are contributing to further evolving and shaping the open banking space.

First, organizations are being created and are making it their mission to standardize, and somewhat regulate, the open banking environment in the United States. With the lack of government regulation here, unlike in the European Union where they have passed two laws — the Payment Service Directive (PSD) in 2007 and PSD2 in 2015, which have regulated banking data exchange. In the U.S., we have seen the creation of the Financial Data Exchange (FDX) group, a nonprofit organization that is dedicated to unifying the financial industry around a common, interoperable and royalty-free standard for the secure access of user-permissioned financial data, aptly named the FDX API. FDX has an international membership that includes financial institutions, financial data aggregators, fintechs, payment networks, consumer groups, financial industry groups and utilities and other permissioned parties in the user-permissioned financial data ecosystem.

The second major contributor, which has not yet taken its full effect, is acquisition of large data aggregators, such as the Finicity acquisition by Mastercard. These acquisitions and partnerships show that the card brands are also evolving their future position and business model around data aggregation, sharing and standardization.

Preparing for the Open Banking Shift

Our organization has many integration points with our financial institutions today, serving cardholders via various channels, and has notable partnerships with industry players that have the potential to shape the open banking space in the U.S. Given these factors, we are well positioned to serve our clients effectively in the open banking space. We continue to watch this space and evolve our strategies according to market shifts.

Vladimir Jovanovic leads the Innovation team at PSCU, with primary responsibilities for strategic direction of the company’s Faster Payments, AI and Enterprise Authentication & Identity efforts. His career with PSCU includes leading the Debit, ATM and Prepaid portfolio where he exercised the ability to interpret customer feedback into well-defined features that ultimately lead to the creation of solid business value for all stakeholders. With over 20 years of payment industry experience, Vladimir is a proven payment strategy leader, focused on providing products and services that position PSCU and its clients for success.