LAS VEGAS–The fifth “massive” technological shift is underway and the resulting changes to financial services are going to be “monumental,” according to one person.
Speaking to the issue of “Open Banking & Beyond: Building the Future of Financial Services,” Mastercard’s Jessica Turner told the Money 20/20 Conference here that after the first four shifts in the lifetimes of meeting attendees—big data, cloud, mobility and the Internet—the fifth—open banking—is going to be just as consequential.
Open banking is generally defined as the use of open APIs that enable third-party developers to build applications and services around the financial institution, with the consumer having financial transparency options that range from open data to private data, depending on the application in use.
“Open banking, open data, open finance seems to be the talk of the conference,” said Turner. “ Although it’s accelerating, we are really just getting started. The growth rate is accelerating all the time. Juniper Research said we are going to see eight times the number of users.”
The Innovation Stage
According to Turner, the market is currently in the innovation stage, where companies want access to data and want to know how to connect and what are the use cases that matter.
“The next phase is what’s important and that is about scaling,” she said. “And that’s where we start talking about the compliance protocols needed for open banking to scale, so that quality is consistent, that it’s meaningful, so people understand why open access to their data makes their lives easier.
Becoming an Industry
“This is where open banking becomes an industry,” Turner continued. “Much like these other tectonic shifts, open banking is the same. Those changed every industry in the world and achieved something for you as a person. Open banking has the potential to do the exact same thing.”
Turner said once the market is through the scale phase, open banking will then reach the stability phase, which is where digital payments are today.
“Digital payments just a few years ago were important, but were considered a luxury. That’s not the case anymore. It’s in the stability phase now because people expect it,” Turner said.
Why Does it Matter?
But why does it matter?
According to Turner, because many of those at the meeting are there to talk payments and innovation.
“It’s all about trust. Open banking is the exchange of consumer or small business permissible data to connect from their financial institution to a third party of their choosing,” Turner explained. “It requires trust from the person allowing it to be used and everyone in the ecosystem. Data privacy is critical. Everyone in the ecosystem needs to focus on it. Data continuity is critical. It needs to be as good if not better than what they can get on paper. People want to digitize their lives but with the expectation everyone is taking responsibility to protect against fraud.”
At the Center of Issue
At the center of that, said Turner is compliance, which she said aligns with data privacy.
“Getting the right data in the right way is how you build trust and build scale,” said Turner. “And the only way you scale is by creating trust and by creating products and experiences and use cases that people want. While we are building this responsible ecosystem and moving into the stability phase, it’s important that the products matter. There is so much more innovation than what we have already started.”
According to Turner, the data right now, as well as the use cases, in the U.S. are very much focused on optimizing something that already exists, such as account opening. But future use cases will include lending, which she said will be among the “most powerful” applications of open banking.
Helping Improve Inclusion
She explained that open banking is likely to lead to expanded credit for many consumers.
“Not only is it profound today to make your business better, it also helps financial inclusion,” Turner said. “There are many people who are creditworthy but who are credit invisible. Some may be new to the country, some may have no credit at all. But open banking gives them access to credit. I think that is fundamental. If the ecosystem evolves like it should, not only will it happen in everyone’s business, it will help with inclusion around the world.”
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