Developments in Open Banking and APIs: Where Does the U.S. Stand?
Open banking has recently emerged as a global trend driven by innovation, regulation, the pace of financial technology (fintech), and consumer demand for more control over how their data is used. Open banking allows for the secure transmission of account data authorized by the customer to a third-party service provider (TPP). While regulation is driving open banking in many countries, the emergence of fintech and financial institution (FI) innovation initiatives are the key drivers of open banking (e.g., third-party personal financial management tools to track spending and streamlined lending) in the U.S. A key benefit of open banking versus closed systems is the ability for FIs to offer customers enhanced financial services, share data with TPPs and offer consumers greater control over their data. FIs use application programming interfaces (APIs) in collaboration with TPPs to enable new services and connect the FI application (app) to merchants, consumers, and companies. This brief describes some of the open banking initiatives in other countries, reviews developments in the U.S., and identifies important considerations for FIs and fintechs.