Skip directly to search

Skip directly to content

 

Open Banking in the US

 
 

Payments | Glenn Geil |
26 April 2022

At its core, the value proposition of Open Banking is making financial services more accessible, competitive, and to improve a customer’s experience with the financial system. The key to unlocking that value is data access – and trust in those given access. That trust will be built on transparency and data protection.

The European adoption of Open Banking has been built on strong rules and regulations which are not present in the US, so the US will likely follow a different adoption path. Still, looking at the European growth and best practices can provide some good guardrails for the US growth.

Four years after its introduction, Open Banking has reached the following milestones in Europe:

  • Strong cumulative growth – 4.5 million regular users, of which 3.9 million are consumers and 600,000 small businesses.
  • Faster adoption in the last 12 months – 60% increase in new customers (up from 2.8 million in December 2020); 1 million new regular users are added every 6 months.
  • Surge in Open Banking payments – At the end of 2021, cumulatively over 26.6 million payments had been made, an increase of more than 500% in 12 months.


With payments innovation decreasing consumer reliance on in-bank visits, and the COVID-19 pandemic making remote banking a necessity, we have seen two approaches to digital banking. One approach has been to mimic the in-person experience, and the other is to reimagine the experience around the digital-first customer. Virtual banks have taken the second approach and gained a competitive time-to-market advantage with regard to addressing consumers’ overall financial needs and desires, rather than just offering digital banking services. One of those desires will be making payment choices based on the needs and optimal return in different situations.

A card will not always be the best choice, especially if there is a tangible incentive, which may be rewards, a discount, or the elimination of an add-on fee or surcharge. One powerful option is the Open-Banking-based consumer-to-merchant direct push of funds, also known as Open Banking Payments. While there are technical elements required, its success will largely be based on consumer awareness and buy-in. Below are a few aspects the payments and banking industry will have to address before it initiates a widespread awareness campaign for Open Banking Payments in the US.

SIMPLICITY

More than anything, simplicity is key to achieving mass adoption. As a general rule, people are interested in using applications only if the customer journey is aligned with their expectations and isn’t disruptive in comparison with utilizing similar processes. If banks and payment organizations champion intuitive design, consumers are more likely to view Open Banking as an alternative payment method, rather than an entirely new offering they have to master.

When introducing new banking products or services, consumers don’t want to feel burdened in their daily lives but rather reap the benefits with minimal interaction and disruptions. The novelty of Open Banking shouldn’t be in the process but rather in the third-party benefits. In fact, there should be no novelty in the consumer mind about Open Banking Payments. It should simply be another easy-to-use choice for making a payment. The key to success will be the consumer experience being much closer to that of Apple or Android Pay than to online/mobile banking.

SECURITY AND DATA PROTECTION

Due to the lack of legislative pressure in the US, the development and adoption of Open Banking Payments will be reliant on its expected commercial benefit, rather than nationwide coordination with a regulatory compliance initiative. While US Open Banking will likely proceed based on guidelines rather than mandates, it is possible that interoperability and collaboration between banks may progress faster than what has occurred in Europe: in Europe, the “open” aspect of banking was mandated, but the uniformity of the data itself was not. In the US, however, the mandates may not be in place, but there are concerted efforts, such as the Financial Data Exchange, to standardize the data, which should accelerate the implementation of meaningful use cases.

Where we may see legislation and mandates is related to data security. Europe’s PSD2 is known for its mandating the opening of banking data via APIs. More importantly, and working in conjunction with the General Data Protection Regulation (GDPR), it also provides a set of “digital rights” to EU residents revolving around consent to use data and clear communication on how data will be used. A similar set of regulations for data security, usage, and transparency would go a long way to building a foundation of trust in US consumers who may have been negatively influenced by the lack of data transparency and protection they have experienced with today’s ad-funded platforms. Europe’s universal assurance that the consumer has absolute control over how and where their data is used and shared provides an excellent case study into safeguards to foster the adoption of Open Banking.

Traditional approaches to data security have been driven by the need to reduce risk and fraud by tightly controlling access to financial data. With Open Banking, the traditional goals of risk management and fraud prevention remain paramount but are augmented with additional goals, such as open data sharing, ease of data consumption, and customer control of their financial data. Open Banking empowers customers to choose who their data is shared with and how much of their data is shared. Banks must facilitate this targeted data sharing while continuing to provide the same high degree of security as today.

As Open Banking use cases evolve and new service models become available to customers, banks must balance data privacy and protection with customer control and transparency. The team at Levvel, who joined the Endava family in 2021, outlines the limitation succinctly in its report on Open Banking architecture: “Open Banking increases the need for banks to guard against external and internal threats. As the number of interfaces through which data can be accessed grows, the type and intensity of external threats will also grow. Existing threat protection techniques that are currently being employed by banks must be extended and enhanced to cover APIs.”

RETURNS, ISSUES, AND FRAUD

A key point to securing the adoption of Open Banking Payments in the US is to establish clear and uniform support for returns and fraud. While there should not be an attempt to mimic the zero-liability policy of cards, the consumer needs to have a clear and consistent, positive experience with how returns, disputes, and exceptions are handled.

The sticking points will be where liability exists when there is fraud and where liability lies with the consumers themselves. The US consumer today has been conditioned to believe that they have no liability, regardless of the actions that led to a scam, theft, or fraud. The merchant processor, bank, or payment organization is almost always the end point for restitution. The widespread adoption of Open Banking Payments will require a commonsense approach for assigning liability for theft or fraud across the landscape of merchants, payment facilitators, and consumers. An awareness campaign, similar to today’s Phishing and P2P fraud ones, is also needed to educate the consumer about the potential risks of scanning QR codes and pushing payments.

In the absence of regulation, liability rules will likely be a work in process. During this time, the most likely start for Open Banking Payments in the US will be with commerce-related services and digital goods, rather than the delivery of physical goods.

CONCLUSION

Open Banking and its payments capability levels the playing field between banks, virtual banks, payment processors, and fintechs. There are always winners and losers with any innovation, but in the case of Open Banking and its impact on payments, it will not be a zero-sum game: there is room for success for everyone, with the consumer being the big winner.

Glenn Geil

SVP Payments Delivery

Glenn has over three decades of experience in both retail payments and banking. He is responsible for delivering strategy and development services to Endava’s global payment industry clients ranging from PayFac’s and Acquirers to Real-Time Payment facilitators and Crypto-Currency exchanges. When he isn’t challenging himself to help clients create innovative payment solutions, Glenn likes the challenge of hiking up the likes of Rainbow Mountain and Machu Picchu.

 

Related Articles

  • 23 June 2022

    A Payments View on Marketplaces – How to Be(come) Successful

  • 12 May 2022

    Are Phones About to Become the New POS Terminals?

  • 22 February 2022

    4 Buy Now Pay Later Trends Set to Disrupt the Industry

  • 14 September 2021

    Once Upon a Time … in Payments

  • 16 September 2020

    MPE Summer Week Recap – a Seismic Shift in the World of Payments

 

From This Author

  • 24 September 2019

    The payments revolution in the US

  • 02 July 2019

    Is your payments provider 3DS2 ready?

  • 07 May 2019

    Failure to launch - Why contactless in the US is behind the rest of the world

Most Popular Articles

Current Challenges in the Transportation & Logistics Industry
 

Transportation & Logistics Insights | Brian Estep | 22 March 2022

Current Challenges in the Transportation & Logistics Industry

AI Art in Game Production – an XDS 2022 Table Discussion
 

AI | Thomas Bedenk | 27 September 2022

AI Art in Game Production – an XDS 2022 Table Discussion

Payments Data Monetisation is Key to Driving Sustainable Growth
 

Payments | Annmarie Mahabir | 20 September 2022

Payments Data Monetisation is Key to Driving Sustainable Growth

4 Buy Now Pay Later Trends Set to Disrupt the Industry
 

Payments | Annmarie Mahabir | 22 February 2022

4 Buy Now Pay Later Trends Set to Disrupt the Industry

Buy or Build? A Game-Changing Question in Insurance
 

Next Gen Insights | Robert Anderson | 12 January 2022

Buy or Build? A Game-Changing Question in Insurance

The New Ways of Issuing Cards
 

Payments | Peter Theunis | 19 July 2022

The New Ways of Issuing Cards

The Metaverse Evolution and Learning from the Games Industry
 

Next Gen Insights | Thomas Bedenk | 30 March 2022

The Metaverse Evolution and Learning from the Games Industry

Top Challenges in Warehouse and Distribution Centers
 

Transportation & Logistics Insights | Brian Estep | 01 March 2022

Top Challenges in Warehouse and Distribution Centers

Buy Now Pay Later: Will Regulation Burst the Bubble?
 

Payments | Annmarie Mahabir | 01 February 2022

Buy Now Pay Later: Will Regulation Burst the Bubble?

 

Archive

  • 27 September 2022

    AI Art in Game Production – an XDS 2022 Table Discussion

  • 20 September 2022

    Payments Data Monetisation is Key to Driving Sustainable Growth

  • 13 September 2022

    Navigating the Healthcare Ecosystem

  • 30 August 2022

    hey y’all! I’m Ashley Grant

  • 23 August 2022

    5 Ways to Fix Your Data Spine in Banking

  • 16 August 2022

    De-risking Digitalisation

  • 09 August 2022

    hi, I’m Brian Estep

  • 02 August 2022

    hey! I’m Lia Rollman

  • 19 July 2022

    The New Ways of Issuing Cards

  • 12 July 2022

    Scores on the Door: Rating Autonomous Vehicles

  • 06 July 2022

    Data-Driven Impact: Don’t Settle for Less

  • 06 July 2022

    We’re in Nottingham – a Q&A on Endava’s New Delivery Centre in the UK

  • 05 July 2022

    hey, I’m Chris Hart

  • 28 June 2022

    Platforms: a Blessing or a Curse?

  • 23 June 2022

    A Payments View on Marketplaces – How to Be(come) Successful

  • 21 June 2022

    Intelligent Commercial Underwriting

  • 14 June 2022

    The Future of Supply Chain: What’s Next?

  • 31 May 2022

    The Future of Autonomous Vehicles in T&L

  • 26 May 2022

    hello! I’m Hannah McCarthy

  • 24 May 2022

    Going Native: Why Cloud-Native Services are Essential

  • 19 May 2022

    How to Tackle Legacy – Breaking Down Walls Between Change and Run

  • 17 May 2022

    Advantages of a Yard Management System

  • 12 May 2022

    Are Phones About to Become the New POS Terminals?

  • 10 May 2022

    The Digital Economy is an Upgrade of Smart Cities and Communities

  • 05 May 2022

    hello! I’m Sumita Davé

  • 03 May 2022

    Physical Automation in the T&L Industry

  • 28 April 2022

    zdravo! I’m Andrej Kotar

  • 26 April 2022

    Open Banking in the US

  • 20 April 2022

    hello! I’m Paul Maguire

  • 19 April 2022

    Digital Automation in the T&L Industry

  • 12 April 2022

    How Do Banks Embrace Embedded Finance – Have the Fintechs Already Won?

  • 06 April 2022

    ESG Data Architecture is a Business Imperative – How to Get Started

  • 05 April 2022

    hi! I am Roy Murphy

  • 05 April 2022

    Modernizing the Shipping and Cargo Process

  • 30 March 2022

    The Metaverse Evolution and Learning from the Games Industry

  • 29 March 2022

    Do Androids Dream of Trading Electric Sheep for Digital Wood? An Introduction to Automated Game Design

  • 23 March 2022

    Real-Time Payments in Australia – Why Corporates Should Get on Board

  • 22 March 2022

    Current Challenges in the Transportation & Logistics Industry

  • 16 March 2022

    bok! I’m Sanja Cvetkovic

  • 15 March 2022

    Rapidly Transforming: Healthtech Trends in 2022

  • 08 March 2022

    How to Digitize Warehouses and Distribution Centers

  • 01 March 2022

    Top Challenges in Warehouse and Distribution Centers

  • 28 February 2022

    Tackling CIB Legacy at its Core

  • 23 February 2022

    salut! I am Isabela Buhai

  • 22 February 2022

    4 Buy Now Pay Later Trends Set to Disrupt the Industry

  • 15 February 2022

    salut! I’m Natalia Ciobanu

  • 14 February 2022

    Product-Led Innovation – a Q&A with Joe Dunleavy

  • 01 February 2022

    Buy Now Pay Later: Will Regulation Burst the Bubble?

  • 31 January 2022

    Innovation Will Spur Ireland’s Race to the Top

  • 28 January 2022

    The Value of Digital and Automation in the Product Returns Process

  • 26 January 2022

    Virtually Disrupted? Keeping Pace with Accelerating Customer Expectations

  • 19 January 2022

    The 3 Big Ps in Modern Insurance: Personalisation, Prediction and Prevention

  • 18 January 2022

    An Introduction to Mobility as a Service in the US

  • 12 January 2022

    Buy or Build? A Game-Changing Question in Insurance

  • 12 January 2022

    hello! I’m Paul Willoughby

  • 11 January 2022

    Payment Service Providers 2.0

  • $name

We are listening

How would you rate your experience with Endava so far?

We would appreciate talking to you about your feedback. Could you share with us your contact details?