By Natalia Cruz
When credit unions embrace open finance and secure data sharing, financial service delivery transforms.
Open finance has created significant global opportunities, especially in regions where it has been discussed longer. Brazil and Europe lead the adoption and implementation of open finance strategies. Regulators like the Consumer Financial Protection Bureau (CFPB) are considering new data-sharing rules that could impact financial institutions.
It’s time for U.S. credit unions to dive deeper into how these new opportunities can drive revenue, reimagine possibilities, and benefit members’ financial experience.
Welcome the Financial Evolution Revolution
Financial information and transaction needs are demanded at the touch of a screen or click of a key. The financial services industry transforms cautiously to meet consumer demand; fintechs rapidly offer greater access and connectivity to financial data that adheres to compliance, reshaping consumer service delivery.
U.S. financial leaders can draw valuable lessons on open finance by analyzing successful implementations worldwide. With more than 800 institutions embracing open finance, Brazil proactively involved various industries in the dialogue and learned from the U.K. and Australia.
In the U.S., regulators, fintechs, and consumer advocates are collaborating and fostering a cooperative environment to listen and learn from one another. U.S. financial providers must expand dialogue beyond borders, learning from and implementing the best examples.
APIs Open New Doors
APIs had already connected computers for decades when Salesforce introduced the first modern API in 2000. Amazon and eBay followed as commerce data-sharing became widely accessible and customizable. Today, APIs are everywhere, supporting our digital and interconnected world, including the financial sector.
API-based solutions empower innovative business models beyond savings and lending, including open and embedded finance. Credit unions that embrace API strategies create new possibilities, ensuring security, compliance, and competitiveness while allowing innovation with other organizations to unlock joint revenue streams.
Standards inPlace
FDX, which is dedicated to unifying the financial industry and consumers around secure access to financial data, has created standards for API security. These standards will influence the CFPB’s new rulings, ensuring secure integration and sharing of quality data quality and systems. Users can permit or revoke their data usage. Screen scraping, a less secure means of gathering data, will be replaced by secure API strategies, allowing the correct information and systems to connect safely.
As financial institutions become like fintechs, their services will be consumed like fintechs’ - through APIs. APIs will allow credit unions smoother evolution as they navigate how to scale and transform to meet new demands.
Rethink Products and Partnerships
Credit unions and fintechs must work together in the best interest of members. New regulations like those proposed by CFPB create concerns about cost and impact. These new rules also bring opportunity.
Thriving in an era of openness requires flexibility, driving innovation, and nurturing adaptability.
Brazil’s financial institutions are thriving in a regulated open finance environment. From transforming to fully online providers to shifting business models entirely, these institutions are evolving, and customer satisfaction is growing. Banco BMG safeguarded customer data and leveraged open APIs to develop innovative payment and credit solutions. They grew 28.2% over 12 months and increased active account holders by an incredible 240.5% to 4.6 million. The bank opened its APIs to third parties, establishing a robust foundation for future initiatives.
A Shifting Paradigm
The paradigm is shifting to leverage APIs and ISV solutions that empower consumers to control their data access. The CFPB’s new rule may soon give U.S. consumers the final say over how their financial data is shared. Financial institutions are engaging in new conversations regarding service delivery to obtain member consent.
Data sharing between members, credit unions and partner offerings drives a more cohesive experience. Members receive better insights and personalized recommendations to seamlessly conduct real-time transactions between accounts held at different institutions, revolutionizing how financial transactions are conducted.
Regulation and Governance - Your New Best Friends
Transitioning to more open financial systems involves marrying financial institutions’ data with technology companies. Businesses must create these integrations under stricter guidelines such as the CFPB’s. Tech companies move faster and work with APIs, AI, and machine learning. Financial services providers traditionally move slower. How the two sectors merge in a safe and compliant way will be the key to progress. And it’s complex.
Sound architecture and APIs that revolve around key capability points and data flows play a crucial role in addressing regulatory requirements and enabling downstream data analysis and access. API-based infrastructures serve regulatory demands, create flexible, open-ended businesses, and respond faster to changing regulations.
Financial providers face governance challenges integrating legacy data and systems with modern infrastructure. API security is superior to simple login and password access methods. Guidance provided by FDX, the CFPB and other experts will help credit unions prioritize security while creating opportunities. Strong governance practices safeguard members’ privacy and should be considered and implemented throughout new tech and API strategy implementation.
Accept the Unknown
In this rapidly changing industry, we don’t know what we don’t know. When thinking about open finance, credit unions should understand where they start is probably not where they’ll end up. Business models evolve. Regulations change. Institutions’ ability to adapt to new tech and modern architecture will be crucial.
Expect innovation from unexpected places, as technology allows organizations to experiment affordably. Open API standards provide global communication mechanisms, and common standards make it easier for new entrants to experiment and integrate more easily with others. A common standard increases collaboration and security, putting credit unions in an exciting place.
We don’t know what the future will bring, but we do know it will be more open, and credit unions will invent new ways to do new things not yet considered. APIs will be critical in architecture, governance, compliance and imagination. It’s exciting to think about where open finance will take us and how the industry will transform.
Natalia Cruz is Head of Open Finance with Sensedia.