Some innovations come along and transform an entire landscape. eBay came and kicked “Classifieds” out of the newspaper. Apple revolutionized the mobile phone and changed how we connect and communicate. One innovation is changing how we experience money, and it’s reshaping financial services: open banking.
At its core, open banking is a philosophy–one centered on empowering the consumer even as it elevates the businesses that integrate its capabilities. Here’s your introduction to open banking and a glimpse into how it’s already benefiting both consumers and financial service providers.
What Is Open Banking?
There are many aspects to open banking and you’re likely to find differing definitions depending on market and geography. But in its simplest form, open banking is empowering consumers to access, use, and benefit from their financial data. Enterprises leverage their big data to big effect. So why can’t individuals, families, and small businesses do the same?
Open banking platforms empower consumers to benefit from their financial data through a wide variety of third-party apps and services that utilize that data to offer new money experiences. To access that data, however, the consumer must give explicit consent to authorize the connection between the financial institution and the third party. This process is often called “permissioning.” Once a consumer permissions access to their data, the third party can access that data and the consumer can benefit from the third party’s services.
While there are variabilities in the technical implementation of open banking, its foundation is a secure environment in which financial data can be shared between parties, and where the consumer has the ability to control access to that data. In order to give the consumer the greatest control and security, the industry is moving toward more “tokenized” access, also known as “Open Authorization” or “oAuth” connections. oAuth connections involve providing a third party with a “token,” as opposed to the consumer’s credentials, to finalize the connection between the consumer and the third party.
Open Banking Is Consumer-Centric
Making the consumers the gatekeeper to their data empowers them with control over who has access to their financial data and what aspects of their financial data they want to share, as well as awareness of what the data is being shared for. What if, after permissioning, the consumer decides they don’t want the third party to access their data any longer? They can revoke their consent at any time. The control is always in the hands of the consumer.
Accelerating these benefits are direct data agreements (sometimes called data access agreements). These agreements define common rules for how the two parties communicate and exchange financial data – they typically include the data source, typically a bank, a data recipient, and a financial data aggregator. Not only is this the most secure way to access financial data, but it also builds a more convenient and streamlined financial services process, a process that benefits both consumers and financial service providers.
Consumer-centric technology and the goal to empower consumers come together to make open banking a platform for financial services innovation. When the consumer owns their data, and is empowered by that ownership, everyone wins.
Why Do We Need Open Banking?
We’re living in a hyper-connected world, yet consumers feel disconnected from what’s happening with their data. Yes, their data is scattered in silos across the web. But they don’t have a sense of ownership or control over it. And they’re not benefiting from it as much as they could.
Open banking is not just focusing on going digital. And it’s not simply creating a better experience. It’s about experiences that empower the consumer. Experiences that engage, expand, and enlighten. Experiences that put the consumer at the center. Engaging experiences where the consumer feels like an active participant. They feel fully connected. Through expanded control and increased access to their personal financial data, consumers will have more financial opportunity and possibilities not previously had or seen. From enlightenment comes understanding and rich insights. Simply put, consumers increase their financial literacy. This will lead to better financial decisions and outcomes.
Open Banking and Empowering Outcomes
Open banking platforms founded on consumer empowerment of course benefit the consumer, but they also elevate the financial service providers that access the permissioned data.
Open Banking and Consumers
Streamlined Experiences
Open banking streamlines financial experiences by simplifying how consumers engage with their financial data. For example, open banking powers convenient peer-to-peer payment and personal financial management apps. These solutions simplify financial experiences as well as empower consumers with actionable insights for improving their financial health.
Accessing consumer data also reduces the paper-chasing and back-and-forth of traditional account opening, payments or lending and provides solutions that feel at home in consumers’ digital lifestyles. What used to take too much time digging through old files, now takes a few minutes and a simple permissioning experience. Everyone saves time–and patience.
Increased Transparency and Security
Open banking empowers consumers by enabling greater security and transparency. Thanks to the emergence of reliable, secure open API connections, consumers will access dashboards where they can review, enable, and disable data sharing connections. More transparency means that consumers stay more informed and can always have both hands on the data-sharing steering wheel. And when direct data agreements rely on secure oAuth technology, third parties access your financial data using a “token” that replaces login credentials. More security. Less hassle.
Greater Financial Inclusion
Open banking and direct data agreements do more than deliver secure convenience: open banking also expands access to credit and increases financial inclusion. Secure connections to financial data enables more credit access for the approximately 53 million U.S. consumers with a thin to non-existent credit file. With this expanded access, open banking supplements the traditional credit score to enable inclusion.
Improved Financial Literacy
With a clearer understanding of their financial health, consumers can improve their financial literacy and be empowered to make better financial decisions. Thanks to the transparency offered by open banking, financial data is no longer a mystery, but a tool for improving quality of life.
Open Banking and Financial Service Providers
Improved Consumer Loyalty
When financial service providers leverage open banking’s capabilities to build consumer-centric experiences, they improve loyalty between their brand and their customers. After all, empowering experiences do more than simply provide a one-time financial service; they enable consumers to improve their financial health. Why would a consumer go to a less consumer-centric, less secure, less innovative provider when they have your empowering, secure, and convenient open-banking-powered experience? Open banking and its accompanying data access also enable providers to continually respond to customer needs and innovate with new services or curate other services that will only further satisfy consumers and improve loyalty.
More Detailed Decisioning
Open banking reduces risk even further by delivering the most accurate real-time data. Data accessed through open banking platforms delivers detailed insights into a borrower’s financial story, providing access to even held-away accounts and complex analytics, like cash flow. A comprehensive financial picture thanks to accurate, real-time data leads to lower risk, better decisioning, and better returns for financial service providers.
Greater Agility
In a dynamic time for financial services (see, well, all of 2020), open banking also enables financial service providers to be more agile and adapt quickly to challenges. Digital solutions powered by open banking platforms require less time, less friction with consumers, and don’t shut down just because a pandemic washes through. These open banking capabilities give organizations the agility to adapt to challenges and continue serving customers.
Streamlined consumer experiences. Lower risk. Better decisioning. All of these lead to higher ROI for financial service providers. Like we said: everyone wins.
How Finicity Is Leveraging Open Banking to Empower Consumers and Providers
Finicity has always been determined to help consumers improve their financial health. Open banking is simply the best way to do that, regardless of where the consumer is in their financial journey. To keep the consumer in focus, our approach to open banking is guided by five core principles:
- Control: the consumer should have control over how, where, and for how long their financial data is used.
- Access: the consumer should have access to their financial data at all times and across all account types.
- Transparency: third parties should be transparent about how they are using a consumer’s financial data.
- Traceability: consumers should be able to trace the routes data takes along the data sharing network.
- Security: the consumer’s financial data should always be protected with secure connections and trustworthy parties.
Our open banking platform is built on our industry leadership in connectivity, data quality, and data intelligence. With connections to over 10,000 financial institutions, Finicity covers over 95% of the U.S. market. Remember those most-secure oAuth connections? Finicity leads the market in oAuth connections to most of the largest financial institutions in the nation. This all means more secure connections for more consumers and more service providers.
Getting the most out of open banking requires more than access to data. That’s why Finicity has built intelligence and deep learning into our analytics layer. That layer offers superior cleaning and categorization along with actionable insights like scoring, verifications, cashflow and more. Plus, we make it easy for businesses to integrate our platform into their workflow.
The open banking transformation may still be in its early innings, but it’s already changing the way we experience money and serve consumers. Check out open banking in action with our data solutions, which put the consumer behind the wheel of their financial health and lead financial service providers to better results.
Other Resources on Open Banking:
American Banker: Open banking will bring banks and fintechs together
MuleSoft: How Financial Service Firms Can Benefit from Open Banking APIs
LendIt: The COVID Effect: Typical Credit Risk Data Became Obsolete Overnight. How Can Open Banking Fix it?
American Banker: It’s time to go all-in on open banking
Finicity: How Open Banking Is Reshaping Creditworthiness
Deloitte: Executing the open banking strategy in the United States
This session was part of API World 2020 including Finicity co-founder Nick Thomas.
The latest update on the Consumer Financial Protection Bureau’s ruling regarding consumers’ rights to access their financial data. What the advance notice of proposed rulemaking (ANPR) they released could mean for traditional banks, fintech companies and consumers.
Heaven Speirs cites many sources, including a report recently released by Finicity, to illustrate the struggles many Americans are facing obtaining credit and paying bills during the covid-19 pandemic.
Recognition underlines Finicity’s efforts to improve financial inclusion and deliver new technologies and solutions to change the credit-decisioning experience
SALT LAKE CITY, Utah – Oct. 20, 2020 – Finicity, a leading provider of open banking solutions, was recognized by the Mortgage Bankers Association (MBA) as a winner of its fifth-annual Residential Diversity and Inclusion Leadership Award under the category of Market Outreach Strategies. MBA presented the award to Finicity during a general session of its 2020 Virtual Annual Convention and Expo on Oct. 19.
As part of MBA’s strategy and promotion of diversity and inclusion, the award recognizes member company initiatives that are specifically designed to increase outreach, marketing or products to attract customers from the industry’s fastest-growing market segments. The award commends the hard work, dedication and creativity of exemplary programs that focus on achieving organizational diversity and inclusion.
“We’re honored to have been recognized by MBA for our concerted efforts around diversity and inclusion,” said Steve Smith, Finicity CEO and Co-founder. “We feel there’s an increasing need to re-evaluate the current credit review process in a way that helps consumers from all backgrounds become more empowered to take control of their own financial data and make better financial decisions. We believe our secure open banking platform can truly help consumers benefit from their data, prove their creditworthiness for loans, and include more people in the traditional financial system.”
In its evaluation, MBA notes: “Finicity stood out for its unique platform to provide a more robust picture of credit worthiness for borrowers. We were particularly impressed by your efforts in improving access to homeownership.”
Finicity’s open banking platform is the engine that drives improvement in the lending process and has introduced several new products and partnerships to further the inclusion of more people in the traditional financial system. Leveraging the Finicity open banking platform’s robust data intelligence layer, Finicity Lend provides a new alternative data service, Cash Flow, that analyzes financial account data delivering a broad set of cash flow attributes. This gives lenders more accurate insights into a small business or individual’s creditworthiness.
The Cash Flow analytics service digitizes and automates the capture and delivery of data that previously required significant combinations of manual and automated processes to extract and analyze. The use of this alternative data is supported by the Board of Governors of the Federal Reserve System, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency as referenced in their Interagency Statement.
In addition, Finicity’s open banking platform provides the technology that empowers consumers to control and share their data to improve their financial lives. And now they can share their utility and phone payment data in order to improve their credit score.
Building on its leadership position with financial institution coverage, Finicity has added payroll data as a source from a leading payroll provider to further enhances Finicity’s open banking platform’s ability to verify consumer-permissioned income and employment details — critical to many lending use cases — with real-time, direct from the source data. These connections empower the consumer through better financial outcomes while at the same time reducing risk and providing better data for lenders to make better decisions.
Expanding the types of data used to determine creditworthiness addresses longtime consumer concerns that have resurfaced recently due to the COVID-19 pandemic and resulting economic downturn. According to a recent study by Finicity, 82% of consumers said they believe the current credit review process and criteria need to change to make it easier for responsible borrowers to prove their creditworthiness and increase access to loans.
About Finicity
Finicity’s mission is to help individuals, families, and organizations make smarter financial decisions through safe and secure access to fast, high-quality data. The company provides a proven and trusted open banking platform that puts consumers in control of their financial data, transforming the way we experience money — everything from budgeting and payments to investing and lending. Finicity partners with influential financial institutions and disruptive fintech providers alike to give consumers a leg up in a complicated financial world helping to improve financial literacy, expanding financial inclusion, and ultimately leading to better financial outcomes. Finicity is headquartered in Salt Lake City, Utah. To learn more or test drive its API, visit www.finicity.com.
Media Relations Contact:
Corbin Mihelic
104 West Partners for Finicity
corbin.mihelic@104west.com
316-209-9794
Ellen Chang of FinLedger discusses the increased adoption of digital banking tools in today’s rapidly changing environment. How open banking has helped organizations put the consumer first in digital experiences.
Read the full article.
Learn what Finicity has discovered as it has helped mortgage lenders and financial institutions adopt digital tools for lending, payments and integrating consumer-permssioned data into your digitization strategy.
Finicity’s newly announced solution suite will help the credit decisioning process for lenders and enabling open banking. Open banking allows people and businesses to benefit from their own financial data. This includes determining how and where third parties — such as financial technology companies (FinTechs) — can access that information to provide new services like money-management programs or initiate payments on their behalf.
Read the full article.
Samantha Hurst of Crowdfund Insider covers the launch of Finicity Lend, an integrated solution set of open banking data services that provides banks, lenders, and fintech developers access to tools that enable their borrowers to directly permission data and insights into lending decisioning processes.
Read the full article.