By: Vladimir Jovanovic, VP, Innovation, PSCU

A powerful force for transformation in the rapidly changing financial services industry has emerged — open banking. At its core, open banking is the sharing of financial data and services through standardized APIs (or application programming interfaces) to foster innovation, competition and consumer choice. While the U.S. has been slower to embrace open banking compared to some other countries, progress is being made – accompanied by some challenges.

Unlocking Open Banking’s Benefits

As open banking advances in the U.S., it will likely reshape our industry’s operations and members’ relationships with their credit unions. Increased access to financial data via standardized APIs helps both fintechs and credit unions comprehensively understand member financial profiles, transactions and behaviors.

Through the secure sharing of financial data with third-party providers, credit unions can collaborate more effectively with fintechs on innovations to enhance and personalize their own digital offerings. Budgeting tools, savings apps, lending platforms and payment solutions, among others, can all be better integrated and tailored to each member’s individual needs and preferences. Open banking’s API integration can also expand access to digital payments at a time when the use of peer-to-peer (P2P) solutions like Venmo, Zelle and PayPal are on the rise. According to PSCU’s most recent Eye on Payments study, 59% of respondents report using digital payment methods at least periodically.

In addition to driving member satisfaction and loyalty through innovation and personalized experiences, open banking may also create new revenue streams for fintechs and credit unions through partnerships and data monetization. Credit unions can generate revenue by offering secure access to their APIs, charging fees for value-added services and participating in revenue-sharing arrangements with third-party providers.

Staying Proactive and Addressing Challenges

While open banking’s future holds immense promise, it also brings complex challenges that must be addressed to fully realize its potential. Currently, the U.S. does not have comprehensive federal legislation dedicated specifically to open banking or open finance. However, initiatives from the Consumer Financial Protection Bureau (CFPB) encourage financial institutions to facilitate consumer access to their financial data. Industry-led initiatives like the Financial Data Exchange (FDX) could help facilitate open banking and finance in the U.S. as well.

As the financial landscape evolves, credit unions should stay informed of regulatory developments and best practices. Open banking raises concerns related to data privacy, security, consent and compliance – credit unions should start developing strategies today to protect their members’ financial information and privacy in the new ecosystem. Prioritizing data integrity and leaning into the trust they are historically known for will position credit unions to harness open banking’s benefits while maintaining the highest standards of service, security and compliance on which their members have come to rely.

Beyond regulatory challenges, open banking’s standardized access to consumer financial data can also promote competition among fintechs, credit unions and traditional banks. More access to banking data allows fintechs to offer their financial products and services directly to consumers, which challenges traditional banks and credit unions to improve their offerings and pricing to stay competitive.

Looking Ahead

Open banking has the power to transform the financial services industry by opening doors to innovation, competition and collaboration that can enhance member experiences and drive growth. As the nation’s premier payments CUSO and an integrated financial technology solutions provider, PSCU is always strategizing how to connect the larger payments and fintech market with the financial institutions it serves. The CUSO also advocates for industry standards on behalf of its Owner credit unions and collaborates with regulatory bodies to help shape the future.

As open banking continues to progress in the U.S., PSCU is committed to helping credit unions keep pace with innovation to attract and retain members – while gaining a competitive advantage. Credit unions can unlock a world of possibilities by embracing open banking and leveraging the right partnerships, creating a future where personalized solutions, increased choice and exceptional member experiences are at the forefront.

Vladimir Jovanovic leads the Innovation team at PSCU, with primary responsibilities for strategic direction of the company’s Faster Payments, AI and Enterprise Authentication & Identity efforts. His career with PSCU includes leading the Debit, ATM and Prepaid portfolio where he exercised the ability to interpret customer feedback into well-defined features that ultimately lead to the creation of solid business value for all stakeholders. With over 20 years of payment industry experience, Vladimir is a proven payment strategy leader, focused on providing products and services that position PSCU and its Owner credit unions for success.