There’s no PSD2-style law requiring banks in the U.S. to share data with third-party payment apps, but the market is progressing as if there will be one, leaving some smaller banks at a disadvantage.
“Small banks have a different set of resources and different priorities in the coronavirus era,” said Paul Diegelman, a vice president at Fiserv, which has centralized access points for third-party aggregation, enabling banks to quickly connect to payment apps and other fintech services.
For smaller banks and credit unions, Fiserv’s update, called AllData Connect, validates user credentials and maintains consumer information inside Fiserv’s firewall. It then delivers data via an API to third-party applications to support payments or other transactions. Third parties do not have to acquire customer data by directly accessing financial institution websites.
The third-party apps are expanding in range, and increasingly include digital payment services as opposed to the financial management apps that dominated early account aggregation.
The expansion of payment apps and fintechs as financial services providers has created
Through AllData Connect, which is designed for small and mid-sized banks and credit unions, Fiserv hopes to allow its network of about 4,000 core platform clients to avoid managing distinct API connections to the myriad third-party payment apps as they enter the market.
“We connect to the bank’s core system, the online banking product and the connection to the third-party app,” Diegelman said.
Other companies that serve banks have also made investments in open banking and aggregation technology. Notably, Visa earlier in 2020 agreed to spend $5 billion to
“With each passing week, there are more fintech apps out there that help consumers do something with their money,” said Diegelman. “Whether it's managing payments, spotting relevant offers or managing stocks, there are so many uses out there for that data. If you’re on the bank side, you know the ‘scraping’ is happening but you know the consumer wants to share more data.”
Open banking is also made more complex by the lack of standardized rules in the U.S. and elsewhere, said Steve Boms, a member of the board of directors at the Global Financial Data and Technology Association.
“What we have seen is the technology industry is given [a blank canvas] to offer their own solutions,” Boms said, adding that creates confusion over stuff as basic as what data fields consumers have a right to and how to share those fields. That discrepancy creates an opportunity for centralized or scaled connections, particularly for banks that operate in different jurisdictions and require flexibility they may not be able to afford.
Among Fiserv’s direct rivals,
FIS earlier this year launched the Ethos ecosystem that offers a repository and data management system supporting aggregation via FIS and third parties. FIS' Code Connect and Event Broker systems can access data for fintechs and bank authorized users, as well as "trigger" events based on the combined and aggregated data, said Bog Legters, chief data officer at FIS, in an email. "Any financial institution's ability to engage with its end users is only as good as its ability to understand those customers, and that requires total access," Legters said. "Having disparate sets of data makes real-time access prohibitive and takes away from the power of open banking."
Account aggregation vendors have served as a major building block of the fintech industry, said Clayton Weir, chief strategy officer at Fispan, a Vancouver, B.C.-based technology company that supports data sharing among different companies.
“Account aggregation as it has been practiced comes with legitimate downsides when it comes to reliability and scope, but more importantly, surrounding issues such as security and data permissions,” Weir said, adding full open banking enabled by API connections can improve real-time contextual bi-directional data flows.
The benefits can also extend to B2B transactions if a bank, for example, is embedded into a customer’s enterprise resource planning or accounting system.
“The bank will have expanded visibility into that customer's financial history,” Weir said. “This additional data can enable that bank to offer a wider variety of products and services.”
