Opening the Possibilities of Open Banking

man walking toward a light that's an up arrow on technology background
By Bill Phillips

4 minutes

Three key considerations for developing your unique strategy

Every year, Jack Henry surveys hundreds of financial institution decision-makers about their strategic priorities and technology plans. When asked about open banking, 55% of respondents to the 2021 survey said it wasn’t on their radar while 30% were in the research, planning or development stages. 

The survey also found there’s still a great need for education and awareness about open banking, with 33% of respondents saying they weren’t familiar with the concept. Eighty-seven percent of respondents already in the research, planning or develop stages said they plan to deploy open banking by 2023, but will that be too late? There’s a lot of work that must be done to educate, encourage adoption and create urgency for open banking.

Building an open technology ecosystem promotes operational agility and collaboration, enabling forward-thinking credit unions to be more competitive and better positioned for near- and long-term success. As a result, they gain the flexibility to integrate point solutions and leverage the expertise of their open banking partners to introduce highly customizable and scalable solutions to their members and markets more quickly, efficiently and seamlessly. 

Each credit union’s open banking strategy will share the fundamental goal of empowering members with innovative solutions to better manage their finances, ultimately improving their financial health. These open banking strategies will be as diverse as the credit union developing them but will have some common considerations. 

1. Take a Platform Approach 

The first step toward open banking is to take a platform approach with the fundamental goals of:

  • Improving the member experience with technologies that will engage and retain them, 
  • Driving near- and long-term growth, and 
  • Creating clear competitive differentiation. 

An open platform leverages application programming interfaces to allow credit unions to partner with fintechs and third parties of their choice, easily integrate their solutions without “permission” from existing technology providers and simplify the ongoing maintenance of their infrastructure. This approach provides complete discretion over which partnerships and integrations get addressed, and when. An open platform materially improves operational agility and enables credit unions to keep pace with the expectations that have been set by big techs like Amazon, Google and Facebook. At its best, an open platform creates a plug-and-play environment. 

2. Pick a Lane

The concept of open banking continues to expand in scope, which is why it’s important to start with a strategic, member-driven focus. Many credit unions begin with payments because they are members’ most common money moments.

Fintechs and big techs have done an incredible job of reinventing person-to-person payments. Based on the Jack Henry survey results, approximately 75% of respondents believe fintechs like Square, PayPal and Venmo are their biggest non-traditional competitors in the payments space. Insider Intelligence predicts that the mobile payments handled by these innovators and others will increase by about 37% this year. As the competitive threat of fintech and big tech intensifies, credit unions will need to offer different payment methods, such as Zelle, to accommodate members’ preferences as well as remain competitive. 

The rise of banking-as-a-service or “embedded finance” poses another threat for credit unions, considering any company in any industry can embed financial services into the consumer experience by partnering with a fully supervised, chartered financial institution. It comes as no surprise that many of these companies are embedding payment functionality into their services, capturing consumers’ deposit and transaction information, then using these details to disintermediate banking relationships by offering loans, cards and financial management solutions. 

Knowing these threats continue to evolve, credit unions should consider investing in modern payment solutions to protect and future-proof their relationships. Modernizing these solutions also presents a new opportunity to catch the attention of different segments, such as the younger generations of potential members. This group of individuals trusts big tech, and with these companies continuing to make their foray into financial services, it’s likely they might be influenced to bank with an Amazon or Google. Understanding how these potential members transact and interact will be key to attracting them whenever they’re ready to bank. 

3. Pick a Payments Partner  

There are special considerations when selecting open banking partners, such as if they:

  • Foster collaboration and establish true partnerships that will help your credit union grow its payments presence and meet member expectations with modern solutions, contemporary functionality and engaging user experiences. 
  • Leverage an open API strategy that enables seamless, easy integration with your existing infrastructure. 
  • Provide access to development tools and testing environments. 

The technology and partnership needed to support open banking can often present infrastructure and staffing challenges. But partnering and collaborating with partners fundamentally committed to open banking with proven strategies can alleviate many of those challenges.

The future of banking is open and now is the time to embrace it. Credit unions will need to be careful when evaluating partners and their open strategies. If a potential partner can’t demonstrate how they’re open, it’s a safe bet that they don’t have a future-ready vision to boost operating efficiencies, enable better member and staff experiences, and create clear competitive differentiators. Is your credit union ready to support open banking?

Bill Phillips is head of product and payments strategy for Jack Henry, Monett, Missouri.

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