How open banking is helping credit unions and banks compete in a fragmented financial ecosystem (VB On-Demand)

Presented by Envestnet | Yodlee

As the U.S. speeds toward open banking, it’s critical for credit unions and community banks to prepare. Access this VB On-Demand event to learn how to make a seamless transition, get best practices for preparing ahead of any regulatory requirements, and more.

Access on demand here for free.

Why should U.S. credit unions and community banks care about open banking? Many financial services leaders think of open banking as a European mandate that has nothing to do with the U.S. So, it may come as somewhat of a surprise to learn that in terms of its adoption per capita, open banking is actually bigger in the U.S. than it is in Europe, says Lee Wetherington, senior director of strategy, at Jack Henry & Associates.

Essentially, the idea of open banking is that the account holder, the consumer or business, owns the data in their financial accounts, and as such, they should be able to share that data with whatever entity they like, for whatever reason.

With the advent of Banking-as-a-Service (BaaS), which enables embedded banking into non-bank settings like big techs, fintechs, neobank challengers like Varo, and so on, the lines between chartered entities and non-chartered entities have blurred. As a result of that, the financial ecosystem has become significantly fragmented.  

“That’s the biggest challenge, but also the biggest strategic opportunity for banks and credit unions to solve in 2022 and going forward,” Wetherington said. “It’s to use the new, better open banking rails of Yodlee, Plaid, Finicity, and Akoya to provide a much more secure, reliable, private, and permissioned version of aggregation back to the bank or credit union so that the customer, the member, the account holder, can have a full view of their finances across this fragmented landscape.”

Again, why should banks and credit unions care? And why do they need to start positioning themselves to take advantage of open banking now, and for the regulations that are coming over the horizon? Because when financial institutions permission and share to third-party fintechs of choice, they can in turn strategically differentiate, in fairly easy fashion, their digital set of products and services, to be relevant to whatever market or niche they’re serving.

“We think that strategic agility, where you’re putting the bank or credit union in the position of being the matchmaker between their accountholders and the best of what the open banking and the fintech ecosystems have to offer, and making that matchmaking as easy as possible, is the best path forward for banks and credit unions to remain not just relevant, but to secure what we call first-app status,” he said.

That’s crucial in the face of the financial fragmentation and complexity of money management currently in the U.S., where more than half of consumer relationships with financial service providers are with non-chartered entities, or non-banks, non-credit unions, such as Venmo and Paypal, and platforms like Amazon which are embedding financial services into their offerings.

BaaS and open banking are driving ecosystem disruption, which is challenging and deteriorating the boundaries that once delineated financial services. The question isn’t whether you can get your customers to ditch all of their other financial services providers, it’s how to achieve first-app status, and how to remain relevant and at the center of your customer’s or member’s financial life in a disrupted, hyper-interconnected financial ecosystem.

“The best way to remain relevant is to identify the services and products that are most relevant to your customers and members, and bring them back into your own digital context,” he says.

It eliminates error-prone inbound screen scraping and replaces it with clean, secure, tokenized API flows that are grabbing only what is narrowly permissioned by that consumer to be shared. And in very short order, account holders will be able to see, in one place, inside of their digital banking app with their bank or credit union, all of the third parties with whom they’ve permissioned their financial data. Financial institutions can then curate, over time, a significantly differentiated digital experience. And consumers get a comprehensive window into all their money and relationships across this fragmented landscape.

“They now have transparency and visibility, but they also have the ability to turn on or off the sharing of their data,” he says. “They’re absolutely in control now.”

Right now, credit unions and banks must prioritize the technical agility to act on strategic imperatives, to position themselves to partner and integrate fintechs of choice at will, without having to wait on a vendor to do it. They need to become the matchmaker between the best of what’s out there and what is most relevant to their customers and members, without having to wait on any third party.  

“That probably is the single most important capability to get sooner than later, to be able to compete effectively in this open banking ecosystem in the United States,” Wetherington says.

To learn more about what open banking looks like now, the changes upcoming regulations will bring, and how credit unions and banks can start taking advantage of the opportunities today and tomorrow, don’t miss this on-demand webinar.

Access on-demand right here.

You’ll learn about:

  • Expectations for open banking in 2022
  • Ways to combine traditional data aggregation methods with new standards
  • How other organizations are preparing for open banking
  • What you can do to be open banking ready

Presenters:

  • Stephen C. Bishop, Chief Operating Officer & EVP, Old Missouri Bank
  • Lee Wetherington, Senior Director of Strategy, Jack Henry & Associates
  • Jeff Schulte, SVP Data Strategy & Technology, Envestnet | Yodlee
  • Seth Colaner, Moderator, VentureBeat

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