Open Banking in the US: Key Developments to Watch
Open banking‘s progress in the United States, similar to any emerging ecosystem, relies on multiple factors, none of which are guaranteed, as stated in PYMNTS. With insights from international implementations and a clearer regulatory landscape, several important trends are emerging.
The central goal of open banking is to empower consumers to control their financial data, enabling seamless sharing with third parties that meet their needs. The Personal Financial Data Rights rule is pivotal, facilitating data portability and enhancing consumer relationships with their banks. This rule, supported by API connectivity, promotes an a la carte approach to financial services from various providers, including FinTechs .
The U.S. is taking a consensus approach to setting standards and industry guidelines for open banking, differing from the UK’s top-down method. The Consumer Financial Protection Bureau (CFPB) advocates for an inclusive process involving public interest groups, app developers, and financial firms. The CFPB can revoke recognition of standard setters after five years, ensuring a dynamic regulatory environment. However, whether this consensus approach will lead to effective standards or result in delays remains to be seen.
Trust is crucial for open banking’s success. A PYMNTS Intelligence report revealed that approximately half of consumers are willing to use open banking payments for expenses such as bills, groceries, or subscriptions. However, only 11% have used these payments in the past year, with 82% reporting satisfaction. For the 56% of non-users, data security and trust are major concerns, underscoring the need for transparent data usage and revocation processes.
Banks might be the primary beneficiaries of open banking in the U.S. due to existing trust levels. The data shows that 43% of consumers trust their banks to provide open banking services. Pay-by-bank solutions, where funds move directly between bank accounts, could be an early popular use case, offering consumers a holistic view of their finances without intermediary charges.
APIs in open banking enable instant payments directly between banks using real-time rails. While this presents opportunities, security concerns persist. Despite 46% of financial institutions highlighting fraud risks, 81% believe they can offer secure real-time payments by leveraging artificial intelligence and advanced analytics.
The UK’s experience with open banking offers valuable lessons for the U.S. Despite initial high expectations, open banking adoption has been slower than anticipated, with significant authorized push payment fraud. However, new developments like Stripe’s open banking-powered payment method and Klarna’s open banking settlements indicate growing interest. These initiatives suggest that while caution prevails, practical use cases will drive adoption.
The evolution of open banking in the U.S. will be shaped by regulatory clarity, consumer trust, and practical applications. The journey is complex, but with informed strategies and lessons from abroad, the potential benefits are substantial.