It is a widely held belief that open banking is an EU-based concept, driven by data privacy regulations like PSD2. And the U.S., the conventional wisdom goes, is behind the beat. But conventional wisdom, under more rigorous examination, doesn’t hold up too well. Open banking, from the financial institution (FI) side, has its foundation in data access, secure data sharing and the ability for third parties to participate in the process. The banks and card networks have embraced that application programming interface (API) economy by either by their own development or through cooperation and M&A with FinTechs.
Now that doesn’t sound like the U.S. unprepared on the data side for open banking. On the consumer side, open banking is about being able to make account-to-account payments while protecting assets and identity. Before saying the U.S. is behind on open banking, consider that there already exists a data-rich, API friendly account-to-account payments system already active and growing. Real-time payments fit the open banking framework in everything but the name.
Is the future of open banking in the U.S. tied to real-time payments? Glenn Geil, senior vice president and head of payments Americas at digital transformation company Endava, says it is. In a recent conversation with PYMNTS’ Karen Webster, Geil noted that for open banking to advance in the U.S., there has to be collaboration and standardization. But once the heavy tech lifting is behind us, Geil had a somewhat surprising observation: “Real-time payments are going to end up as the foundation for open banking payments.”
In a way, the past is a prologue, he said, and to get a sense of how it all may develop here in the states, look, of course, to the EU. In Europe, especially in the U.K., real-time payments gained traction and real-time payments, in Geil’s words, “came around and built on top of it.”
As he told Webster, real-time payments have speed as a hallmark, yes, but they also have a broad range of rich data deeply embedded in the transactions themselves. That data in turn opens up the use cases for open banking payments. To that end, open banking is about more than sharing data; it’s about enabling payments from one account to another. Though we’re in “read only mode” now, the potential is there for banking services to become smarter, chiefly through using that data in productive, proactive ways, tied to non-payment activities.
“Once you have a better structure for who opens up the data — and who owns it — when you open it up, you can get into [use cases] such as apartment lease, utilities, originations and lending,” he said. Users can just sign in and populate data fields and data feeds, eliminating the need for mountains of paperwork.
Moving Into Payments
At that point then, the stage is set to start moving into payments, said Geil. Once financial services firms get into the payments part of the equation, they can enable direct-to-merchant transactions — but also importantly, will move into smarter, push payments, giving consumers control of their funds, moving money where they want it to go, in real time.
“An overnight push doesn’t do it. You’ve got to be able to push the payment with the data that goes with it or to someone to do for you,” he said.
The door opens for data aggregators to become trusted intermediaries, who in turn serve as the bridge to payments woven into consumers’ lifestyles. Those intermediaries, said Geil, will manage everything from consumers’ bill payments to subscriptions.
With the aid of artificial intelligence (AI) and machine learning, smarter (automated) payments form the nucleus of super apps.
Banking super apps, of course, enable consumers to make their way through a range of financial activities on one platform or app-driven digital front door, without having to navigate between programs or providers (Google is a prime example, noted Webster, as it has been trying to pull traditional banking services into its eCommerce ecosystem). The trusted intermediary, he said, will wind up being one of the financial names we trust — perhaps with a presence in traditional financial services, that has demonstrated it knows how to hold and protect data, even as it has to tie all of these efforts together across multiple rails.
The trusted intermediary will decidedly not be a digital, FinTech upstart, he said, at least not initially. As open banking evolves, the playing field is level enough for any number of players — banks, FinTechs and Big Tech among them — to cement and gain customers’ trust.
Consumers And Data
The hurdle is there, but surmountable, as Geil noted that roughly half of consumers don’t trust their data to be shared with anyone. But the other half that’s open to sharing data are comfortable signing up for new services and financial products. Regardless of who’s trusted now, or down the line, Geil explained, “if that intermediary can get smart and really determined and know when to move money, when to pay a bill, which account to pay something out of and learns that I always want to pay my mortgage out of this account on the 15th of the month … and it’s tailored to each consumer or small business in each case, that’s when the value really starts to come in.”
Open banking, when it fully takes off, will serve as the intersection of activities where users can put their money wherever they want it — and gain access to services wherever they want. To get toward mass adoption, he said, consumers are going to demand that real-time payments are free — and according to Geil, firms will step in and swallow some of the cost, while adding revenue streams.
“What I see on that roadmap is businesses driving that next step of getting RTP to work, where you can have smart AI-driven payments with open banking — looking at accounts, driving payments, moving money back and forth because they’ll pay the fees,” he said.
It’s a sea change from FIs that have historically just been offering a service — presenting a bill, or marketing a banking app. Banks have historically not understood the customer experience, said Geil, but collecting, storing, analyzing and utilizing data changes the very way FIs can, and will, interact with customers, in essence creating subscription, platform-based models.
“Think of all the fees that they could charge on the front end for initiating all of those activities,” said Geil. “Or if they held the keys, they could start charging an interchange rate for processing that payment to the bill payment company. So I think there’s lots of ways they could monetize it.”
Over the next few years, he said, as open banking develops in the U.S., we’ll see some guideline regulations, though nothing on the order of PSD2 via government mandate.
By 2025, he predicted, we’ll be fairly near the end of an open banking, real-time payments journey.
“I think we’re seeing that things are slow to start, but once they start, they accelerate pretty fast,” he said. “We’ll get to that point where we’ll be talking less about payments and what a payment is, and payments will be just a part of those other processes that are all in place. We’ll be talking more about the app and the experience and less about the payment.”
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