How Open Banking Can Change Financial Services

Achieving intuitive user experiences with a fintech ecosystem

While the world becomes accustomed to immediate access to just about everything, consumers have developed the same expectation for their financial services. If they are not able to achieve instant gratification at their financial institution (FI), they will look elsewhere – taking market share and hard-earned relationships away from regional and community FIs. By turning to fintechs, consumers are, “trusting non-banks more than ever in the past.”

Consumers know their data is widely available. They frequently are linking their social media accounts to log in to new websites, and want that same convenience when it comes to banking.

What is open banking?

While open banking may seem like a new concept, it is widely used by companies around the world. Open banking enables users to share their data across technology platforms beyond the initial account provider. The user must first give permission for the provider to use their data within their API network; users can opt out of these permissions as they deem necessary. However, if users opt out, they will not benefit from the convenience and availability provided by this fintech innovation.

The most common example of open banking can be seen when a user is opening a new deposit account or aggregating their existing financial accounts. Oftentimes during this scenario, the consumer will leverage a provider, like Plaid or Yodlee, to fund or link their accounts. In a survey by Mastercard, they found that, “81% of US adults are currently linking their bank accounts to third-party financial apps” (Business Insider, 2021). With a majority of consumers already using open banking capabilities, it has become a widely accepted practice. In a Forbes article written by Ron Shevlin, he states that, “the percentage of banks and credit unions that have invested in or developed APIs has grown from 35% in 2019 to 47% in 2021—and another 25% plan to invest in or develop APIs in 2022.”

As FIs assess the expectations of their customers and members, banks and credit unions have begun to leverage external technology partners to strengthen their digital infrastructure. While these partners may help the FI grow user engagement, not all online banking providers are able to easily integrate these services into their platform.

To overcome this, Alkami has deployed an ecosystem designed to equip FIs with robust SDK and API resources that enable them to build a platform that meets their exact needs. In an ever-changing technology landscape, FIs need a digital banking partner that will support them in future-proofing their digital experience and help them scale their organization.

How can FIs harness the power of open banking?

To truly capitalize on open banking, FIs must narrow in on their digital experience. Open banking prioritizes the convenience of users. With an open ecosystem, users can apply for new deposit accounts or loan products with simpler applications, achieve greater financial health with account aggregation, and improve the user experience (UX) with deeper personalization and targeted offers. Beyond convenience for the user, FIs can develop operational efficiencies in departments that historically required manual processes. By streamlining these business areas, FIs can reimagine key departments’ capabilities and functions, empowering them to achieve more through data insights and rediscovered time.

While open banking can improve digital capabilities, some FIs are wary of data security risks, spammy marketing offers for their customers or members, and regulatory concerns. Rather than taking on this burden themselves, FIs need a trusted online banking partner who will support them in this endeavor and prioritize their security and compliance stature while delivering their users meaningful, relevant content.

To stay competitive in the marketplace, regional and community FIs must take advantage of the opportunity of open banking or risk the chance of losing their user base. In order to launch a successful open banking endeavor, FIs should lead with transparency. This will reaffirm institutional trust with customers and members while enabling them to control the permissions and data they share with third parties.

How does Alkami support open banking?

Alkami’s platform is cloud-based with a single code base built to foster an environment of innovation. Essentially, Alkami’s extensibility solution allows banks and credit unions to seamlessly pair their existing technology partnerships with their digital banking platform, whether the fintech is an existing Alkami partner or not.

To this end, Alkami’s multi-tenant modern architecture allows FIs to easily configure their own applications with ease. This “open platform” approach puts the FI in the driver’s seat, empowering them to select their strategic technology partners and connecting them to Alkami’s digital banking via APIs. An example of this effort is the FDX integration Alkami is building with Plaid. This API will allow clients to improve metric capabilities, and support customers or members as they manage their aggregated accounts within their online banking platform.

Dedicated to scalability, Alkami enables FIs to maintain a competitive edge against megabanks and digital challenger banks with continuous software delivery. By developing partnerships with fintechs, FIs can seize open banking as the next chapter in their strategic growth venture. If FIs enable users to leverage their existing data, they can attract new customers or members and retain users – strengthening primary FI relationships.

Ultimately, open banking broadens accessibility for financial services through APIs. With an environment built for true fintech collaboration and institutional growth, Alkami encourages FIs to find the right tools that will support them in achieving their business objectives.