Open banking is one European import Americans have been reluctant to buy. American banking remains resolutely closed. That may soon change.
Way back in 2017, when open banking was a hot topic with regulatory deadlines looming for European banks, American banks briefly wondered if this was worth importing. The decision was a clear “No thanks, closed banking is our thing”. That decision was short-sighted.
A few American banks opened up APIs to developers (Capital One, Chase, etc.), yet this was innovation theater and fringe experimentation, not a core play. If only a small portion of screen-scraping could be replaced by APIs, the partial fix meant a patchy experience for customers.
The bank’s rationale was “We don’t have to share, so why should we?” and “You can’t monetize these APIs, so we don’t have a business case.” And doe-eyed idealists in the US protested that this wasn’t about rules, it was the bank’s opportunity to create a marketplace—think iTunes store—but founded on their rails with financial data. Opening up customer data could mean opening up new revenue streams at a time when banks desperately needed growth.
Why open banking is the future
It is 2019, and where are we? The Payments Service Directive 2 in Europe and CMA in UK are in their second year and characterized by banks dragging their feet, with fintechs unable to make use of the data. Though anything banking takes a while, and these teething issues will be resolved. API regulations in Hong Kong, Australia, and Canada are all looking like promising equivalents, so expect 2025 to be an open banking world, with one major exception.
That leaves the US bank data ecosystem way behind and looking increasingly like the third world. American financial institutions are going to be at a major disadvantage when they’re the last ones still screen-scraping customer data with the lag and data quality challenges that pose.
Fintechs may save the day. Data aggregators Plaid, Quovo, and MX are making it easier for fintechs to connect to consumer bank data. However, without a burning platform, like regulatory deadlines, most US banks will wait until they’ve lost significant opportunities to open banking leaders before they get serious about their data and API strategy. Yes, many banks have private APIs in place and have been quietly reaping the benefits to share data more efficiently within the bank and with select partners. Yet when the biggest threat comes from a tech titan like Amazon, that has been API-first for years, this wake-up call will likely come too late for banks to react in time. The burning platform will need to come from bank leadership, not regulators to ensure US banks thrive in what’s next for banking.