Open Banking
Open Banking
April 7, 2021
8 Min

Open Banking in the United States: Are You Ready to Catch Up?


Have you heard about Open Banking? It's quite a popular concept right now! Open Banking is a part of a wider global movement for consumer data rights, called Open Data. Open Banking can also refer to the regulations and technology that enable these rights to be exercised in the banking and financial services sector.

This article focuses on how the recent trends and changes in Open Banking around the world—especially regulatory changes in the EU and UK—are likely to affect banks, fintechs, and other businesses in the US. We conclude that globalization is forcing US banks, fintechs, and other businesses to make internal changes to comply with EU and UK regulations, but these same changes also prepare them to join the Open Banking community.

Good Programming Practices Inevitably Lead to Open Banking

The concept of open banking is not new. In fact, it is based on sound software architecture principles that can be applied to any industry. The banking industry, however, is conservative and highly security conscious. As well, the industry must deal with multiple complex, archaic, legacy IT infrastructures that make implementing new architectures difficult. So, without deadlines imposed by legal regulations, banks have no incentive to quickly adopt Open Banking principles.

Open Banking is Based on Existing Programming Principles

Open banking is based on a “digital first business model,” where a bank’s internal software is built modularly, and each module communicates with the other modules through application program interfaces (APIs). Because all the data is passed through APIs, it is easy for the banks to open selected APIs to third parties so the third parties can aggregate or manipulate financial data on behalf of consumers. It is also easy for banks to maintain security by limiting the number and type of APIs opened to third parties.

Open Banking Needs Standardized APIs to Function Efficiently

Although banks can choose to follow good programming principles and use APIs for both internal and external data transfer, these APIs can be homegrown and therefore unique and proprietary. It is difficult for a third-party developer such as a fintech to interface with multiple banks if the banks all use their own unique APIs.

This is why, around the world, several organizations have initiated projects to standardize the APIs that typically interface with third party developers. One organization, the Open Bank Project, offers at least ten categories of standardized APIs. These categories include:

  • Accounts, which allows access to a user’s account information such as current balance in an account
  • Payments and Transaction Requests, which allows for initiation of transfers
  • Transactions, which allows access to a user’s transaction history

In the US, Nacha has started a standards group called Afinis. The group currently has the following nine payments related APIs live and available for use:

  • ACH Account Validation (AAV) for use with Phixius
  • Account Validation
  • ACH Payment Initiation
  • Bank Contact Information
  • Bank Contact v2
  • Pay Me
  • Payee Profile
  • Real-Time Billing Account Validation
  • Transaction Status

In Europe and since 2016, the Banking Industry Architecture Network (BIAN) has defined 30 standardized APIs and implemented them both from the consumers’ end and providers’ end. Although BAIN started in Europe, they are well-connected in the US as well.

Lastly, the industry group the Financial Services Information Sharing and Analysis Center (FS-ISAC), through its subsidiary the Financial Data Exchange (FDX), is also developing APIs relevant to Open Banking.

With so many organizations developing standardized APIs for Open Banking and payment processing, banks and fintechs in the US and elsewhere already have the software tools they need to adopt the Open Banking model. The question then becomes whether they have the incentive to do so.

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