The emergence and evolution of Open Banking in the US

Monday 19 February 2024 11:33 CET | Editor: Vlad Macovei | Interview

Rob Mannamkery from EY highlights financial wellness, real-time analytics, and modular balance sheet services as emerging trends in progressive US Open Banking.


Rob Mannamkery from EY highlights financial wellness, real-time analytics, and modular balance sheet services as emerging trends in progressive US Open Banking.


What progress has the US made in adopting Open Banking, and why hasn't there been a regulatory framework established for it? Has the US' less prescriptive approach to Open Banking fostered more innovation?

In 2022, the Consumer Financial Protection Bureau (CFPB) proposed a rule outlining data portability based on Section 1033 of the Dodd-Frank Act; this is widely considered the watershed Open Banking regulatory guidance for the US market. While no formal rule has yet been adopted, banks have been embracing Open Banking for the greater part of the past decade due to competitive pressures from tech-forward digital natives, higher customer expectations for convenience, and the desire to innovate new offerings based on access to broader data sets and emerging technologies.  


What are the key differences between the US and other regions concerning Open Banking?

The banking infrastructure in the US market tends to be more intricate in terms of policy and established rails when compared to many regions. As a result, the US adoption rate of solutions such as Open Banking can lag other jurisdictions due to regulatory complexities and technology hurdles. Given the investment acceleration in digital technology due to the pandemic and regulatory encouragement of competition for consumer choice, the pathways to Open Banking adoption have been clearing up. The US Open Banking market is on an upward trajectory with an estimated double-digit Compound Annual Growth Rate (CAGR) through 2030.


How are US banks embracing Open Banking, and can you provide examples of their strategies and initiatives?

The foundational use cases for Open Banking in the US stemmed from account aggregation and the need to link accounts for underwriting credit products such as mortgages. Many banks formed partnerships with data aggregators. Several US money centres, regional banks, investment management firms, fintechs, and industry utilities have formed consortiums that standardise the data exchange protocols thereby reducing structural friction. Now we’re seeing banks utilise Open Banking for innovative solutions such as financial wellness – which connects not just banking, but also investments and insurance, to paint a holistic view of customers’ financial health beyond the traditional banking ecosystem with real-time insights.  

Additionally, banks of all sizes are exploring the potential for new profit pools through Banking-as-a-Service (BaaS) and Embedded Finance to grow their existing value propositions beyond the core product set. These types of strategies are difficult to execute because they require banks to navigate business and operating model challenges that exist within their corporate construct, align financial metrics and Key Performance Indicators (KPIs) for revenue attribution, and modernise the core as their legacy infrastructure depreciates.


What recommendations do you have for banks seeking to adopt Open Banking practices? Should banks prioritise data or relationship-building in this context?

As a first step, banks should identify the use cases for Open Banking and tie these back to their overall enterprise strategic objectives. The benefits of Open Banking become more tangible when banks have made investments in their data and analytics infrastructure and can leverage the data to improve their value proposition. This requires banks to be less product-focused and more customer relationship-focused. This, in turn, will serve as a guidepost for the types of partnerships and data sets that will enhance the relationship.  


What are the most popular or promising services powered by Open Banking in the US? What are the key Open Banking players in the US?

Financial wellness, real-time predictive analytics, and the ability for banks to offer modular balance sheet services through third parties are the emerging propositions related to progressive Open Banking in the US. Earlier this year the Fed introduced the FedNow instant settlement service, which is expected to boost instant payments, and the existing Real-Time Payments (RTP) utilisation has been steadily increasing. The combination of these is particularly important to banks because they have the potential to drive new revenue streams through multi-product relationships and provide brand differentiation.


What are your top three predictions for the development of the US fintech ecosystem over the next three years, especially in the context of Open Banking?

  1. More fintechs will be brought into the banking perimeter. Given the existing macroeconomic conditions, fintech business models are being interrogated as they relate to profitability, long-term growth, and efficiencies of scale.  We will continue to see more fintechs applying for de novo charters, acquiring insured depository institutions, or seeking to get acquired by banks to improve unit economics; therefore, more fintechs will be brought into the banking perimeter and subject to prudential regulation.

  2. Fintechs will focus more on vertically integrated solutions. As demands for industry-specific solutions increase (e.g., retail, hospitality, healthcare), fintechs will focus on critical components within industry value chains to improve B2C and B2B offerings which include complex asset classes. Value chains will be split across multiple, financial, and non-financial participants – the seamless movement of data via Open Banking will be key to value creation.

  3. Fintechs will be more prominent in the trust and safety layers of the banking innovation stack. As value chains become more commingled facilitated by the proliferation of emerging technology such as GenAI, fintechs will push more into the trust and safety layers as banks increasingly transition into clearinghouses for unstructured and structured data sets. Banks are advancing their innovation agendas and will require flexible trust and safety solutions to demonstrate transparency across the ecosystem.

This editorial piece was first published in the Open Finance Report 2023. We encourage you to download the report and find out the latest trends and developments in the world of Open Banking and Open Finance, as the road to Open Data continues.

About Rob Mannamkery

Rob is the US consumer banking ecosystem strategy lead within EY’s Banking Capital Markets practice where he works with clients on defining their enterprise and business unit level growth strategies. He works across financial services’ operators to develop their strategic vision, define Return-On-Investment (ROI) value-based metrics, and execute their business and digital transformation to deliver realised value.

About EY

EY is a global professional services organisation that exists to build a better working world, helping create long-term value for clients, people and society and build trust in the capital markets. Working across assurance, consulting, law, strategy, tax and transactions, EY teams ask better questions to find new answers for the complex issues facing our world today.

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Keywords: Open Banking, fintech, regulation, banks
Categories: Banking & Fintech
Companies: EY
Countries: United States
This article is part of category

Banking & Fintech


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