Good afternoon! In today's Braintrust, we asked the experts to talk to us about the future open banking. The regulatory landscape will always be a part of open banking conversations, but with this edition, we wanted to dig into the tech that powers it and find out what changes could be on the way. On a separate note, Protocol Climate is launching soon, and we've been assembling a group of climate/sustainability experts for some upcoming Braintrusts. If you or someone you know should be a part of that group, send us a note at firstname.lastname@example.org.
EVP, Technology Development, New Digital Infrastructure & Fintech at Mastercard
Open banking is a platform for innovation. The fintech sector is growing faster than ever, and a platform for accessing consumer-permissioned data will power innovation focused on financial inclusion, financial literacy, money movement and beyond. The successes of many financial products (e.g., lending services offered by Rocket Mortgage and powered by Mastercard’s open banking offering) demonstrate the value consumers already see in using apps and services that consumer-permissioned data made possible.
As we move toward more seamless digital experiences, one of the most important technological advancements will be universal use of APIs to build direct connections to banks, fintech companies, brokerages and payroll providers. APIs help ensure the best data through the fastest, most secure and most reliable connections — this will lead to increased data sources, data availability and data quality, and deepened data intelligence and analytics. Advanced intelligence will deliver more personalized attributes and insights for lending, payments and personal finance, moving beyond just banking to finance more broadly.
The future of open banking is about enabling consumer choice through the secure exchange of data, facilitated through infrastructure, applications and services, and localized customer service. Mastercard’s global open banking platform puts consumers and small businesses at the center of where and how their financial data is used and provides efficient, secure and affordable access to services they want and need. Innovation in open banking requires taking a developer-centric approach and using strong APIs, data connectivity and infrastructure combined with data privacy and security principles to enable all ecosystem players.
As open banking continues to advance, fraud threats and security issues will always evolve along with the technology behind these ecosystems, and these issues must be mitigated if open banking is to become as widespread in the U.S. as it is in Europe and elsewhere. From a technological standpoint, this could be in the form of embedded security protocols added to emerging platforms, such as data encryption, stronger authentication systems and better data storage hygiene. This could even include automated destroying or wiping unnecessarily stored consumer information. With more retail opportunities and consumer opportunities and account-to-account transactions, fraud could rise. Fraudsters will try to work the new tech systems, so it’s important for everybody in the open banking ecosystem to employ multilayered approaches to security. Financial institutions and Fintechs can offer unlimited innovative products to consumers and businesses, but getting them to participate in these open banking systems requires a collaborative approach to security and standards.
No comment on open banking is complete without talking about data technologies. The open banking framework is working well in several regions (Europe, USA, India, Hong Kong, South Korea) but the data policies and frameworks are lagging behind.
I would like to see the lag reduce with the adoption of data technologies that support active consent, synthetic data creation (for sandboxes), biometric authentication and API ecosystem creation. This is especially important when fintechs are actively trying to work with partners in other industries like health care, travel and retail, sharing consumer data through open APIs.
Chief executive officer at the Financial Technology Association
Open banking is driving financial inclusion, particularly for the 22 million unbanked or underbanked Americans. With open banking, institutions like community banks, credit unions, community development financial institutions (CDFIs) and minority depository institutions (MDIs) can partner with fintechs to provide curated financial services. That means early wage access, overdraft protections, bill payment, money management and more services for consumers. From a technological standpoint, fintechs need standardized access through APIs to consumer-permissioned data to drive better outcomes for consumers. Legacy systems employed by traditional banks cannot communicate well with modern applications. APIs solve this problem by acting as a common set of functions that serve as a translator or intermediary between providers. They also enable more iterative innovation by leveraging capabilities of other applications, like authentication and processing. This especially benefits smaller financial institutions with limited resources as well as consumers who benefit from complete and renewable insights. Ultimately, access parity will ensure fintech partnerships continue to help smaller banks, CDFIs and MDIs compete in the financial system.
The key to improving open banking technology is to make sure that it keeps pace with consumers’ financial needs and demands. Today, open banking lets consumers access and share their bank data. But a consumer’s financial life is more than their bank account. They deserve open finance tools to let them share the financial data they want, whether it is with a bank, a brokerage, a payroll provider, or a fintech. With nearly a third of Millennials reporting that their primary checking account is with a fintech, the need for open finance technologies that deliver more choice to consumers and accelerate innovation is clear.
Kevin McAllister ( @k__mcallister) is a Research Editor at Protocol, leading the development of Braintrust. Prior to joining the team, he was a rankings data reporter at The Wall Street Journal, where he oversaw structured data projects for the Journal's strategy team.