Open banking – a simple idea with far-reaching impact
It’s a fairly straightforward concept. The phrase “open banking” describes the technology to enable members to share their account information, transaction history, and related financial data with other institutions.
It works through the use of application programming interfaces – APIs. While we won’t get into inner workings of APIs, the open banking concept appears to be a significant source of financial innovation, perhaps robust enough to ultimately reshape the entire US retail financial industry.
There are examples in place where you can see how open banking plays out in the real world. It’s already part of the financial landscape in several developed nations. Australia, Germany, Japan, and Singapore have it now and open banking will be in place in Canada by 2023.
Open banking delivers attractive benefits and positive member implications
For example, CUs would be able to compare members’ accounts and transaction histories across institutions. This more-thorough analysis could lead to new service options or beneficial account changes for members.
Right now, the act of moving one’s checking account to another institution is a tedious, error prone, and time-consuming process. Open banking should dramatically improve this experience. This fact alone could generate lots of enthusiastic member support for open banking.
An API could be programmed to do a deep analytic dive into member transaction data. This analysis could potentially identify better products and services for them. Perhaps a deposit account with a higher interest rate or a credit card with better features.
Visually impaired members could use an app controlled by voice commands to help them understand their finances better and do more of their own transactions. And open banking should improve fraud detection because it’ll make it be easier to monitor multiple accounts. This would make it simpler to identify potential problems and address them sooner.
Shared account information could revamp lending processes to the benefit of members
Since CUs will have access to a fuller, more-accurate picture of a member’s overall financial situation and risk profile, it may be possible to offer improved loan terms.
In the same way, open financial data could help members get a clearer view of their finances before they apply for a loan. Specifically, an open banking app for members who are looking for a home could calculate what they can afford based on all their financial information. This API-based approach should provide a more reliable picture of borrowers than current mortgage lending guidelines do.
Open banking will lead to improved member service, stronger relationships, and better member retention
All three of these positive outcomes should flow directly from open banking. After CUs help members understand and manage their finances better, members will quickly appreciate their CU as more than a place to do simple transactions. The net outcome of all this is after they’ve experienced this new, more holistic financial understanding, they may be more loyal to your credit union and less prone to switch institutions.
On the downside, broader data sharing could mean risk of financial fraud
While we generally adopt new technology for the benefits it brings, there’s also the possibility of other changes. Open banking could pose risks to member financial privacy and data security. For example, there’s potential for a malicious third-party app capable of cleaning out a member’s account. To be sure, this would be an extreme and unlikely threat. But it is a threat.
The more realistic concerns include breaches related to poor data security, hacking, or malicious insiders. These types of threats will likely become more common as personal financial data is shared, aggregated, and interconnected in new ways.
Self-owned digital ID plays a necessary role in open banking
It makes sense. The increased data sharing of open banking means increased risk for all types of financial fraud. This suggests member authentication will be more important at every step. This is because every time you go through an authentication process, regardless of channel or purpose, there’s imposter risk, risk of identity theft, and more.
Self-owned digital ID creates an unhackable encrypted connection between you and a member. It delivers unmatched safety and security. When members ID themselves in this way you can be certain they are who they say they are.
It’s a necessary component in an open banking environment. And when it’s present, all forms of financial fraud are virtually eliminated.
As you work through your credit union’s 2022 strategic planning, it’s the perfect time for you to seriously explore how you could add a digital ID benefit for your members. They’ll appreciate it immediately.
Self-owned digital ID is definitely a great member benefit for you to pursue!