Open banking has often been seen as a regulatory requirement or a compliance issue, but it also comes with immense potential for driving new business. In this video, Laurent Van Huffel, Senior VP of Financial Services and Open Banking for North America at Axway, looks at some of the valuable use cases for open banking and how financial services providers can define success with it.
“It’s true that open banking is often seen as a regulation. In North America there is no such regulation, at least not now, and it's been mostly market-driven. However, the CFPB (Consumer Financial Protection Bureau) has announced some regulations for early next year.
Open banking is about, namely, opening up your customers’ information to third party vendors.
Why would a bank do this?
It started with the account aggregators, and I'll take a very simple example with Venmo.
When you send $50 to your child via Venmo, then your kid is going to transfer that money into their checking account. To do this, Venmo gives them two choices. One of them, which is mostly used by everyone, is to enter your username, your password, and your checking account number, and then it will transfer the money.
When you do this, the account aggregator is going to log into your account as if it were you, transfer the money, using a technology called screen scraping to access all your information.
Building up actionable intelligence thanks to aggregators
Why do they do this?
It's because by accessing all this information from all your checking accounts, all your financial accounts, 401K, investments... they can analyze this data and then sell it back to the banks, so the banks can understand how their customers bank outside of their bank.
Then the banks can create a digital profile of their customers and upsell or cross-sell their product to this customer.
That's called actionable intelligence.
It’s actionable intelligence that banks do not have access to today, but they now can because of these account aggregators that started this many years ago.
So, by doing this, then the banks can like I said cross-sell/up-sell their customers, but also open up a lot of new types of business.
For example, financial advisors can access your records and then better provide financial advice to the customer. Wealth management, retirement... there are a lot of business cases that banks can better propose to their customers in order for them to better manage their money.”
The power of real-time payments for commercial banking
“When people think in terms of open banking, they typically think in terms of consumer banking. But there's another aspect that is very important, which is commercial banking.
For several years now commercial banking has been undergoing a profound transformation because of the real-time payment phenomenon for commercial banking.
Real-time payment is the ability to pay your suppliers, for instance, in real time. In America, the Clearing House launched its real-time payment effort several years ago already and this is also a global phenomenon across the world.
Because of this, most of the treasurers, who are the customers of commercial banks, want to have access to their money in real time; manage their money in real time, forecast their money in real time.
The ability for open banking to open up that information to third party payment vendors will give the banks the ability to provide – mostly through partnerships with fintechs – their customers with better services, new types of applications so that those customers can have access and manage their money in real time.”
