Open Banking Opens Doors for Credit Unions
By Rahm McDaniel, VP Business Development Q2 Open
The future of banking is in open banking—the democratization of financial services through technology. The term “open banking” may seem lofty, but it simply allows retailers, credit unions, and members to easily and safely share financial information across a network of platforms. For instance, you might want to connect savings, checking, and investment accounts into a personal financial management tool.
Or, if you prefer to get more technical, the definition from Investopedia reads, “Open banking is a system that provides a user with a network of financial institutions’ data through the use of application programming interfaces (APIs). The Open Banking Standard defines how financial data should be created, shared, and accessed.” An API is a set of rules regarding how various systems interact, allowing multiple systems to communicate with each other. It defines the requirements for authentication and data sharing. Developers essentially build applications and services around the financial institution.
How do these APIs enable open banking and simplify processes? They allow financial institutions and service providers to connect to each other more easily to perform functions that once required transfer of physical documents to complete. A real-world example of this is direct deposit. Money is transferred electronically from an employer’s bank account to the employees’ credit union, and then into the individual accounts. This service was reserved for large banks not long ago, but is now nearly universally available.
Using APIs, a financial institution can create a suite of services for its members that allows them to grow their relationship without having to visit a branch. With the right data, partners, and implementation, your member can sign up for a loan from their phone. This level of access is what customers are demanding and using today. More than half of your competition in the U.S. and three-quarters in Europe see open banking as core to their digital transformation. In fact, 77% of banks intend to invest in open banking this year. We don’t know how the scenario will play out yet, but many are investing big dollars into it as a way of simplifying the process for all parties involved: fintechs, retailers, financial institutions, and consumers.
Don’t wait until your members start asking. Download the whitepaper, Five Things to Know About “Open” Banking Technology, for more information and start building your strategy today.