How Open Banking Has Evolved For Commercial Clients

An Executive Insight with FISPAN’s CEO Clayton Weir as he shares the reasons behind why open banking adoption has been slow to rise in the U.S, how it enables financial institutions to better compete with new entrants, and what’s next in the world of open banking.

In 2022, the corporate banking market has now grown to encapsulate around $416 billion and both businesses and individual consumers are realizing the benefits of a space where banks are no longer the only players in the financial transaction process. With third party providers starting to also seek profit from this market, the growth of open banking has allowed FinTechs to provide similar offerings such as debit cards, lending solutions, and even payment services. As a result, this increased competition is putting pressure on banks to transform their services through APIs, with 46% of traditional banks investing in or developing APIs last year.

APIs and open banking infrastructure are the foundation for the development of new products and services, especially those that are embedded into the systems corporate clients already use. It is the creation of these innovative services that will ultimately win new business as systems move to the cloud. Clayton Weir, FISPAN’s Co-Founder and CEO, shares his thoughts on how open banking APIs can contribute to greater business value for both banks and consumers, why open banking has been slow to adoption in the U.S, as well as the evolution of open banking in upcoming years.

Read The Full Q&A Below

The pandemic has resulted in a significant shift in businesses’ banking and other financial needs. How can open banking APIs help unlock access to products and services that are in step with businesses’ banking needs?

With APIs, they’re not the thing that solves the problem; they’re the thing before the thing. With the pandemic and the nature of teams being distributed and people working asynchronous hours more and more now ... more digital tools [are required] for any job.

There’s a fun analogy from early in the pandemic: There’s like a 100-year-old business called Dressew in Vancouver that sells bolts of fabric. ... It was the most unimaginable business to be an eCommerce player all of a sudden, but it was forced to do so out of necessity.

That replicated across different types of businesses in different business functions. ... What [the pandemic] heightened was the need for these digital tools, different apps, things that solve different operational problems, whether for finance teams or for the business in general.

For those to work properly, from a banking perspective, it ultimately requires APIs and open banking infrastructure to enable those things to interact with bank data or bank services and ultimately achieve the business value that you were hoping for when you bought those different pieces of software.

Unlike Europe and the Asia-Pacific region, adoption of open banking in the U.S. has been relatively slow. What are some of the factors that are hampering the growth and development of open banking and what needs to change?

One thing that’s really true in the U.S. versus Europe is that it’s not a regulatory thing here, right? In Europe, and in the U.K., it was this government-mandated initiative — PSD2 — that you would have to allow certain types of people to access certain types of things via this open banking platform.

If that’s the definition, there’s no open banking happening in the U.S. in that way, because there’s no pan-national federal regulation that said that banks had to do that, or that financial institutions had to do that.

There’s a completely different way to spin it. ... [In the U.S.] there is sort of this gray market open banking that sort of predates the idea of a formalized [initiative] where there are these aggregators that use screen scraping technology to facilitate open banking, [and] things where third-party apps can get certain financial data from you under your consent and [their] app builders can create an experience.

So, in some ways, America’s quite a way [along] — you might even argue that they’re ahead. They’ve had that type of option for 20 years now. And all the large FinTech anchors of the last decade or more since the financial crash — the Wealthfronts and the Robinhoods — that’s what they’ve relied on to build their businesses.

Measuring [the two styles of open banking] would be really different depending on how you slice that data, but what is generally true versus Europe is that North America doesn’t have a regulatory regime. My gut sense is that what’s different versus Asia or certain developing markets is there’s that little bit of a phenomenon where you sometimes skip the legacy infrastructure so you jump right to the future.

How can embracing open banking help U.S. FIs better compete with new entrants in the financial services space?

You have to believe the high tide raises all boats, because obviously with open banking, the first order effect is that it hypothetically creates more competition, and it should enable more FinTechs to offer a wider range of services.

One way to look at open banking is to think about everything that you’ve thought about a bank doing historically and changing the idea from it being money in the vault to being data, as opposed to keeping your money safe and sharing the money where it needs to go or lending it to people and managing that kind of circle of money flow and safety.

You might imagine that the bank’s job in the future is to do [those actions] with your data. ... Say I’m trying to get ... student loans for my kids, or I’m trying to get this mortgage, and I want you to facilitate an easy way to share my data with this provider or that provider so that I can get that mortgage, then that’s their job.

I think even in the future there might be a business model [for FIs], because [an FI is] a very safe custodian, the same as with your money. It’s a very safe custodian with your data, hypothetically, to begin with, and then they’re in the business of sending it or extending trust to these other domains.

How do you anticipate the open banking landscape to evolve in the next five years? How is it going to change the commercial banking space?

It’s going to move a lot in five years. It has moved a lot in the last couple of years — the banks are talking about it and they’re really running with it. …

I think, at some point in the U.S., there’ll be some kind of a concerted effort by one of the regulatory regimes to do something on this. So that very well might happen within the next five years.

What you will see is there’s this virtuous cycle to [open banking]. As the banks make more and more services available, there’ll be more and more startups that add that kind of build on top of that, that create more and more value propositions that will coax out more and more things that the bank can do and should do.

I think that we’ll see a material growth in this over the next five years. It’s up in the air whether it will actually be formalized as a regulatory framework, but it’s probably [trending] up and to the right, from my perspective.

Learn more about the current state of commercial banking in this free FISPAN report made in collaboration with PYMNTS.

More About Clayton Weir

Clayton R. Weir is the Chief Executive Officer and Co-Founder of FISPAN. He shapes FISPAN’s vision and execution, with an emphasis on people, product, and client success. 

Over the last 5 years, Clayton has led FISPAN to become the market leader in embedded banking. FISPAN banking partners collectively hold $11 trillion in assets and include 11 of the top 40 banks in North America. Clayton is also the host of FISPAN’s If I Ran the Bank podcast, hitting on the hottest topics in banking, finance, and the future of payments.

If I Ran the Bank

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