Open banking represents a pivotal moment for the financial industry. It is a movement that will revolutionize how financial institutions and consumers interact, driving innovation, competition, and collaboration across the sector. As the industry awaits the Consumer Financial Protection Bureau’s (CFPB) final rule on open banking later this fall, financial institutions are presented with opportunities and challenges.

Preparing for this new era requires a proactive approach to data management, ensuring that data is complete, comprehensive, clean, and up-to-date. This preparation is not just about compliance—it’s about setting a strong foundation for long-term financial success. Keep reading to learn more about how Alkami is preparing to support the future of open banking and guidance on how financial institutions can prepare internally.

What is Open Banking?

Open banking is a framework that allows third-party services to access a financial institution’s data through Application Programming Interfaces (APIs). This enables a more transparent and integrated financial ecosystem where consumers can seamlessly manage their finances across multiple platforms. It encourages collaboration between banks/credit unions and fintech companies, leading to innovative financial products and services that better meet consumer needs.

How Alkami is Preparing for Open Banking

Alkami has been at the forefront of preparing for the open banking movement due to our close partnership with top aggregators, including our first-to-market partnership with Plaid in November 2023, where Alkami became the first and largest major digital banking platform fully live on Plaid’s FDX aligned API, Core Exchange.

The Importance of Data in Open Banking

The foundation of open banking is data. Financial institutions possess vast amounts of account holder data that, when properly managed, can be leveraged to provide personalized services, enhance user experiences, and create new revenue streams.

Proper data management is crucial for several reasons:

1. Regulatory Compliance: Open banking comes with stringent data-sharing regulations to protect consumer privacy and ensure data security. Financial institutions need to ensure their data practices are compliant with these regulations to avoid penalties and maintain trust.
2. Data Quality and Accuracy: Accurate and up-to-date data is essential for making informed business decisions, offering personalized services, and developing innovative financial products. Poor data quality can lead to errors, misinformed decisions, and ultimately, dissatisfaction.
3. Enhanced User Experience: With open banking, account holders will have more control over their financial data and more choices regarding financial services. By ensuring that data is clean, comprehensive, and current, financial institutions can provide a more seamless user experience and build stronger banking relationships.
4. Operational Efficiency: Effective data management can streamline operations, reduce costs, and improve efficiency. With well-organized and accessible data, financial institutions can more easily integrate with third-party applications and services, reducing the time and effort required to develop new products and services.

Data Management Best Practices

The best way financial institutions can set themselves up for success and realize the potential benefits of open banking is by ensuring the data in their digital banking platform is accurate and up-to-date, complete and clean.

• Complete Data: Key information such as full name, address, email address, phone number, emergency contact information and preferred communication method should be completed for all account holders. In addition to account holder information, data regarding user and account permissions must be completed, which will indicate what access, functionality and actions that third parties can take on behalf of the user. Lastly, it is important for financial institutions to specify what format they use to accept ACH transactions from the Federal Reserve.
• Up to Date and Accurate Data: Account holder information and permissions must be up to date to ensure compliance with regulatory requirements, prevent fraud, and deliver personalized services, alerts and communications. Updated and accurate permissions are especially important because with open banking, financial institutions are able to be very intentional and specific about what functionality, data and access is shared with the third party provider.
  • For example, if a user is connecting their financial institution to a third party such as Venmo, with Alkami’s FDX API integration (open banking route), Alkami checks for the permissions that have been designated for the user and their account at your financial institution. We check to ensure that the person authorizing the connection is a primary account holder, and if they are allowed to authorize automated clearing house (ACH) transactions. With open banking, Alkami does the validation on the backend to protect your institution and end users from potential fraud.

Taking On the Future of Open Banking, Together

Open banking marks the beginning of an exciting opportunity for financial institutions and consumers alike, opening up new possibilities for innovation, engagement, and growth. While the regulations are still being finalized and many aspects remain uncertain, there is no need for financial institutions to feel nervous. As your trusted partner, Alkami is here to help you navigate through these changes, providing the expertise and support needed to properly prepare for and thrive in this new future. Together, we can unlock the full potential of open banking, driving positive outcomes for both your institution and your account holders.

When the CFPB’s rule becomes final, currently planned for this fall, we will share more information about our strategic roadmap and timeline to comply with these updates, and we will provide updates and guidance on how these changes will impact your financial institution.