Transcription:
Don Cardinal: (
Well, good afternoon. Welcome. Today's panel is API is the new business channel. My name is Don Cardinal. I'm the managing director of Financial Data Exchange. I like my esteem panelist to introduce themselves.
Aaron Bridgers: (
So I'm Aaron Bridgers. I'm the head of strategy and innovation of regions, and also volunteer at FDX and heard the previous conversation about barbecue. Now I was just gonna continue it just for a second and then I hand it to everyone else. I am from North Carolina, we have three types of barbecue. We have Southern golden, which he mentioned with the mustard. We have Lexington red which is a sweet red sauce, and we have Eastern barbecue, which is a smokey red sauce. And they're all better than anything that you're gonna have out here. And I just wanna set that straight.
Don Cardinal: (
I'm taking some Texas barbecue locally owned right after this, actually.
Aaron Bridgers: (
Yeah, there's many favors involved to.
Mike Holly: (
Prove it.
Aaron Bridgers: (
We just have to do a trip.
John Pitts: (
John Pitts. I am the Hannah policy for PLA and since Ian Raja have basically said anything that I can plausibly say over this panel already. The one thing I will promise you is I will say half of what they said with twice as many words at three times the volume, because that my basic role at PLA I'm also DX board member. And that's it.
Mike Holly: (
Hi, Mike Holly at USAA, I lead a deposits and retail payments product management and platform organization, a bit of a mouthful but focused on anything from our deposit originations to financial wellness, open banking and how we're modernizing our systems.
Don Cardinal: (
All right, with that out the way let's get into some real controversial stuff. First of all, open banking, open finance is coming. Not only that it's already here, there are over 32 million people on the FDX spec and it's growing over a million a month. And that means all of you. So at a minimum, it's a compliance thing to get ahead of. We'll talk a little bit about what's coming, what we think in the tea leaves, but for those that are looking at these rails and going, what? These are secure two-way rails, you know what? This would be really useful in my line of business and an adjacent lines of business. You know what? This could be a differentiator. And that's really what I'm gonna ask my panelists today to talk about. But getting back to the reg items in the last 18 months, there's been a lot of activity just in the us.
Don Cardinal: (
You had the advanced notice to proposed rule making in November 20, you had the white house executive order to tell a CFPB, get off the dime and make something happen last summer. And just three weeks ago in a press release from the CFPB about their modernizing their innovation office. They said they coming open banking, financial regulations or interpretation of Todd Frank ten three will happen. Not should happen, not might happen. And I've got the exact quote, a future rule making under CFPB 10 30, 3 of the consumer financial protect act will give customers access to their own data. Now it should not possibly. It's a very strong language. It's common folks. All right, now I'm gonna have all of your attention. Holy crap. It's the regulatory thing. Let's talk about the business reasons why you should do that. And with that, I'm gonna ask my esteem panelists who are way smarter than I am. So Aaron, I'm gonna speak on regions first and see you're next to me. What are some of the ways FDX AI implementation is supporting your sales and onboarding process?
Aaron Bridgers: (
Yeah, I mean, so when it first, I think RA did a really good job of talking about the history of open banking. And at the beginning it really was just providing data. So it was data out. And you're trying to make that data out more secure. You're trying to reduce or get rid of screen scraping, make sure that people aren't sharing their passwords with third parties. And it was, there was no real business model outside of partnerships for banks for us at regions, we're super regional bank. We have three basic business segments. We have retail, we have wealth management, we have commercial, we see it as an opportunity across all three lines. So for consumer, we have a origination systems that we want to make it paperless. We want to reduce the search costs. We want to prefill forms. And eventually we're looking at doing KYC and fraud checks and all that.
Aaron Bridgers: (
And making sure that we can check accounts at existing banks and do all sorts of things to make sure it's not a mule account that's on the consumer side. So it's really just making it frictionless, making it better, reducing the burden around BSA, a M L and fraud on the wealth management side, you have your retail wealth customers. Those are looking to get a holistic view of all their assets. So you can have a really good asset allocation conversation. You can have really good rebalancing conversation. You can say, maybe you should get outta your cryptocurrency. So that's on the retail wealth side yesterday
Aaron Bridgers: (
Or so I don't get financial. I am a CFA. I don't give financial advice, not on panels. So, there's also the institutional wealth customers and they're looking to automate things. They typically have enterprise resource planning tools. They're looking to automate a lot of their cash management and they're looking to create a lot of efficiencies on their side, through open banking APIs, same thing on the commercial side, you have your FinTech customers these are actual customers of the bank or just, I would just say technology leaning companies that want to embed bank services in their website, in their mobile app. Maybe traditionally they use DWA. Maybe they traditionally, I'm not, I shouldn't say names here. I'll pull back. Yeah, maybe they use other options, but now banks are starting to play in that space too. So that's more of your embedded finance. And then again, you have your E R P users or open treasury open banking. There's also a scavenger hunt. There is a person in this room that has a shirt on that says, ask me about treasury, open banking, look for her.
Don Cardinal: (
She will buy you a beverage.
Aaron Bridgers: (
Yeah. She knows a lot about it. So that's how we think about from our side. We think of it as a business model. We think of ways of reducing frictions and on the commercial side is really revenue, not necessarily from usage, but getting those customers onboard at getting those prospects landed. That's got a long way from just simple sticking a straw, a bank and pulling out data. So, John, can you tell me kind of how those viewpoints have changed over the last few years as we morph from open banking to open finance?
John Pitts: (
Yeah. So I think there's three big trends that we've seen at lab. The first one you talked about, but I wanna stretch it out a little bit more this is non made, right? The every country outside of the us has a fairly robust open banking law. Not most only CD country now have a fairly robust open banking law. That's fair. The us still has more open banking happening, but it does not have a law. And that's put us in that really uncomfortable position for a number of years there sort of screen scraping and a relationship between aggregators and banks was not as well as it should have been. And the certainty that it has come really has been a shift in mindset. And let me just give one example this, and I'd say, this is those the next stand down, which is at cloud.
John Pitts: (
We used to talk to two people at the bank, the dated in person and the data out person. And they were two completely different people. And they had two different responsibilities. And to make this a little bit more granular and Ian rod week across the table, stop going too far like banks in thinking about sort of how data leads the bank. We're thinking about things like, oh, you need to have these slow down requirements. We need to set expectations that a cloud customer, they need to notify us in six minutes. If they have breach, that's the expect started customers to bank customers and say the hell, do you need six? Like we're not telling another bank in six minutes that we had a data breach. We're a bank. Like we know how to handle ourselves. We know what our obligations are. And once you start thinking about data in and data out as both being essential to your institution, long time it moves from this compliance exercise sort of has done initially talked about it to a, well, how do we make this ecosystem work for hu. And that's sort of the last thing that I'll point to in terms of where we see the shift is PLA has started building out API connections to Non-bank.
Speaker 5: (
Quite extensively over the last year that's driven largely by consumer demand, right? Consumers want to be able to connect their FinTech to another FinTech or back to a bank because they are thinking about their bank account as a place where that is now the hub of my financial life. It has everything connected to it. And I want more data going into that bank account. Not only do I think of that as the place, my apps are connected to, I think of it as the place where I want more data to flow, not just flow out but flow in right now today after just about a year of doing this in earnest, a material amount of plaids traffic, what I'm talking about like double digit percentages is FinTech sourced data flowing back to banks or flowing to other fintechs. And once again, you have that sort of mindset shift of this is an opportunity for me as an institution.
Speaker 5: (
This is an opportunity for me to turn my checking account into a top of wallet, payment account and connected account. That makes my relationship with my customer deeper, richer and stickier. And for me to be able to build new products, because I can see more of my customer's financial life. I mean, we already talked about this a little bit, but we've started to see the facts on the ground of that really radically shift, especially in the last year and a half or so as open finance has become a certainty in the us market. So I'd say that's what we've seen done.
Don Cardinal: (
That is quite a shift. I do wanna have a hometown favorite USA is just an hour down the road. So I wanted to ask Mike, how is open finance, helping you serve your customers in helping with your mission to serve those who serve?
Mike Holly: (
Yeah, thanks and first off, thanks to plaid for sponsoring the open banking track here. I think it's really important and thanks to FDX for loaning us, Don expertise. So really excited to be here. I'll say, I think between John Ian and Raja plaid hacked into my computer and stole my notes because I think you'll hear a lot of the exact same thing from me as far as what everybody has said so far on open banking, but I actually set it up in a in a way that speaks very much to what John said, data in and data out. So as a provider of data for US we know we can't be all things to all people. We still want to enable our members, our customers to do business off us and ensure that they've got safe, secure, reliable, and accurate access to their data, right.
Mike Holly: (
Streams scraping wasn't always the most reliable approach before allows us to monitor as well. Our members usage of their data, our members and customers across the industry are demanding new and innovative channels and new and innovative products think the internet of things someday in the future, right? It could be driving your Tesla on a road trip and acquire a new checking account via conversation while you drive, right. We can't as U S a be there to create all of these new, great use cases, but through open banking, we can enable our members to continue to do business with us in that approach, generate new products and new revenue. As a result we also need to focus on our core competencies as organizations I can't build for every fringe case or niche scenario that's out there in the marketplace today.
Mike Holly: (
If I try to do that, I'm gonna put myself out of business very quickly trying to acquire all the it resources to do just that, right. So I can enable our members to go and serve their needs for these niche use cases in fringe scenarios via open banking and again ensure reliable, accurate access to their data in a safe and secure way to enable that while still maintaining the primary banking relationship at my bank. Lastly, the ability to track and monitor where our members go, if we don't offer a particular product or service or maybe what we do offer is subpar. Our members are gonna vote with their feet, right? They're gonna go somewhere, aggregate their data and pull it into an experience off us. Looking at just the trends last week for S a specifically the top three use cases for us are payments specifically P2P.
Mike Holly: (
We've also got investing in budgeting. So all the personal financial management stuff that Ian and others have mentioned so far as well as lending to folks that may not have the best credit score out there. So those are areas that we could go and look at as an organization analyze and determine do we want to get into that marketplace? Should we improve the existing experiences maybe that we have as a consumer of data, a lot of the stuff that's already been said here as a general theme at digital banking this year, hyper personalization, if I provide the right environment to encourage my members to aggregate their data in with us from across the industry, right? I know I'm not gonna hold everybody's accounts across the board, but I can provide them the ability to see all that stuff in one place and maximize the use of that data to provide what's now expected hyper personalized advice.
Mike Holly: (
That's focused on that member's specific needs as well as potentially make very targeted offers for additional products internally to deepen my own relationship with them. Another onslaught of random benefits that I think I've heard a few of at least improved technical performance availability and reduced cost in the environment supporting it via APIs versus screen scraping, improve security, less credentials in the wild, less account takeovers and less fraud losses associated with it. Some military specific benefits for S A's mission imagine a deployed military member across the world trying to manage their finances with their spouse, if they can put their whole financial picture into one place, view it and not waste precious minutes and seconds on the phone. The one time per week that they get to talk worrying about who paid the electric bill and did it get paid?
Mike Holly: (
That's a tremendous win all empowered by open banking where I'd love to see us go in the future as an industry as well in digital identities. So heard some folks speak about fraud's running rampant like raise your hand if you've seen an increase in fraud this year. It's crazy, right. Seeing digital identity so I can know I am doing business with the right person at the right time via digital channels is gonna be extremely important as well as helping with things like AML and KYC. These are just really scratching the surface of some of the benefits that I think are possible. I'm most excited about the innovations that will come in the future. As we hit critical mass in open banking across the industry.
Don Cardinal: (
Thanks, Mike. Speaking of innovations we're the op FDX only open finance spec that has fraud reporting as part of it. A lot of times apps or aggregators will see pre fraud before it happens before the money's exfil traded and UN, unless you knew a guy who knew a guy at bank at US or chase wherever regions, not much you could do. We have a right API that allows an app to reach out to the bank and say, Hey, wait a minute. Mike's account. I speak I'm mint, by the way, I'm coming up through this channel, I'm coming through plaid. And by the way, it's Mike's account specifically this account. And then here's the indicators of compromise, strong signal, noise ratio, trusted parties, trusted channel the SIM and sock can ingest that. And it's very actionable. That's huge. We did that because our members wanted it. That's the value of a member generated system. One of the other things we talked about open banking in the last session, it's primarily consumer current accounts, whereas open finances, the totality of what's being scraped in your financial life, not just for consumers, but also for small and medium businesses. And so I'm gonna ask some of my peers here to talk about what open finance help is doing for their small and medium business customers. So, Aaron, yeah.
Aaron Bridgers: (
I would say we're early in that process, but one of the things that we're looking at is how do you increase digital onboarding, especially for small businesses while reducing or keeping fraud down. So how do you verify it really is a small business? How do you verify that you're actually dealing with that small business that you think you're dealing with? So are they real and are you really talking to them? So, those are the things that we're looking at in the small business space. And then as we figure out things in the E R P space, we want to not just focus on the large corporates, we're looking at things like QuickBooks and things of that nature and ways that we can continue to provide value, even for people that don't have large it staffs. So that's the other piece.
Aaron Bridgers: (
I would just add that, we keep talking about data in and data out, and that's definitely like a way to think of it, but it's also bank products. We offer commercial cars those our first open banking use case or treasury open banking use case. So it's the data's really important. The ability to fire off payments is really important. The ability to consent to things is really important. And I do see, I already see some of our competitors out there with fraud solutions. I already see some of our competitors with information solutions and then some of your more traditional players, like early warning system, they're now rebranding themselves. They're repositioning themselves as part of this open banking ecosystem. And you can white label their API. So it's changing. There's a lot out there and early warning system, I brought that up cuz that's gonna be a big part. I think of a lot of people's small business and medium sized business strategy.
Don Cardinal: (
Absolutely. And speaking of small business and fraud events, what's the most important small business news in the last three years, PPP loans. So John I'd like you to comment on what things you've seen developing that space and how open finance helped that out.
Speaker 5: (
Yeah, thanks Don. So, I think PPP was one of those watershed moments where a bunch of bank lenders suddenly realized there was huge value to them in being able to ingest non-bank data really quickly and seamlessly in this case it was payroll data, right? And so particularly actually community banks were some of the leaders in this being able to originate outsize numbers of PPP loans, because they could have a small business really seamlessly share their payroll data by having extracted out of an API. Right. And when I think about open finance, I think about payroll as one of those elements there frankly, I'm glad you mentioned QuickBooks. I think about QuickBooks as something that's part of open finance where maybe you're a small business customer in applying for a loan. They're not just sending you data, but they're giving you direct access to their own accounting software.
Speaker 5: (
And you can see all of it in real time. So that PPP moment, I think crystallized for a lot of small and medium sized banks, how much of an opportunity what there was, if you can build that good consumer experience and you can build out that product on the back of data that you used to have to sort of go through a bunch of manual steps to get and now can do automatically. I think it also sent a little bit of a signal of the cost of not being able to do that right in the current environment. If you remember right after that first round of PPP, there was and I'm glad we've mentioned identity. A couple of times here, there was a lot of pushback on some of the largest FI's who were only lending to existing customers, right?
Speaker 5: (
The idea was no you should be lending to everyone. You should be able to quickly onboard and confirm that this is a legitimate small business. This is not a fraudster. Why don't you have the ability to do that for non-customers. And especially as we see the Prudential regulators starting to rethink what things like the community reinvestment act mean in a digital lending ecosystem where your branches are may not matter anymore because you have borrowers all over the country and maybe you are just a two or three branch bank, but you have a national footprint as those things change. I think the expectation of what good looks like is changing with it. And that means being able to follow the 2019 interagency guidance on cash flow lending, it means being able to look at what the OCC is doing with project reach and saying the smallest of small businesses, they don't have a small business account.
Speaker 5: (
They've got a personal account that they use for both small business and personal. And if you can't get that data in and you can't lend to those consumers, sort of at the first rung of the ladder of small business, we are not sure that you're meeting your obligations anymore as a financial institution. And so there's both sort of the opportunity and a little bit of the stick to say, you should be modernizing and you should be modernizing with the idea of seamless data in that allows you to expand access to responsible credit for small businesses. Because that's where we see financial inclusion going. That's where we see the opportunity for small business business lending in this country that we expect to continue to be the foundation of the economy.
Don Cardinal: (
And so as we talk about servicing those small business customers and microbusiness customers, having an idea of what's held away and what that total share of wallet really is not just the piece that you happen to see on your systems is crucial. So Mike, I was wondering if you could talk about what USA does to have that visibility for the entire customer.
Mike Holly: (
Yeah, thanks. I'll use a military specific scenario here. Weird, so, we know that there's some very specific employment challenges with military spouses specifically recent study shows over 20% of military spouses are unemployed and seeking employment. That's like four times the national average all. So USA unfortunately doesn't offer small business bank accounts but we can provide and compensate by the ability to use open banking, to put all their finances to view in one place. And, it enables us to still continue to maintain that primary banking relationship, at least for the personal accounts. We can also use the data that we consume as a result of that data sharing in to provide again, personalized advice and potentially offers to areas of our organization that do support small business such as our insurance company.
Don Cardinal: (
All right, we're coming up against it. So I wanted to do kind of a lightning around a lot of the folks in this room are still kind of, I have to do something now. I really know I have to do something but what do I do? So I wanna talk about how you think these folks should consider going from zero to hero with the FDX API. And it's kind of the de facto standard here in north America. So just lightening around, how would you recommend these folks look into going from zero to hero?
Aaron Bridgers: (
I would say start learning the breadth and depth of this entire ecosystem. Do some external research start collecting data. We collect data around how screen scraping around the different data aggregators that access our client's accounts, where we've collected data around the E R P systems that our commercial clients use. So start collecting that data, start reading, join FDX. I had to say that for you, yeah, Join FDX. You can, it's super cheap. So, we're gonna write up, we're actually releasing a paper that should be able to help you make that help you catch up on a lot of the research. That's gonna be an industry paper and through the FDX channel and helped you make that case to your capital committee or whoever else. Also look for someone in this room that's wearing a blue shirt that says, ask me about treasury open banking. You can actually start on your open banking journey today.
Speaker 5: (
Yeah, so Rajane in the previous session already talked about core exchange, but I will briefly re mention it here for those who didn't hear, this is a sort of a implementation guidebook for the FDX specification. And it is for an institution that wants the majority of their volume to move from screen scraping to API as quickly as possible. This is plaid looking at that FDX spec and saying, this is how you do it. We are an API specialist. We have more API volume than any other company in the country. More than half of Plaid's traffic overall is on bank APIs. At this point we live and breathe FDX, and we can give you that sort of here's what you need to do in what order, and this gets you there as fast as possible playbook for how to do it. So somewhat self-serving answer, but you should call Raja and Ian, you should ask them about core exchange there.
Mike Holly: (
Awesome, first and foremost just start moving like pick up the pin start joting down your notes today. Iterate into it. Start small with a minimum viable product, probably focused on regulatory compliance, quite honestly, via data sharing. Don't get overwhelmed by the totality of what the potential is for open banking and embedded finance, cuz you'll, your eyes will glaze over very quickly communicate and quantify the value with your senior leaders. Start making the case, right, lean on FDX and some of the materials that they're putting out there in order to help you make that case go out and review, read the CFB data, sharing principles. If you haven't, it'll give you probably a pretty good hint on where the reg environment is gonna go. And then I'll put in the shameless plug as well, consult with FDX over and over and over again because they're gonna help you to do it, right? If you're a small bank, you don't have a big investment budget partner with somebody who can help you gain those efficiencies and get to market faster, build your roadmap and your timeline now because what you'll probably find is that if you're not already behind if you wait for the regulatory environment to catch up to you, you're gonna be way behind. So again, just get moving now.
Don Cardinal: (
So I appreciate that. Again, you're not alone. Most of your peer banks are here to help you. If you need help contacting a peer bank, want some advice to somebody your same size, let us know. We'll hook you into them. We'll talk to people who are on the journey, who will help you. We all want to help everyone get to all API. I, no IDs and passwords, no screen scraping. So with that, I know we're at time. I want to thank that plaid for hosting us. Thank you so much for your support. Thank you. My panelists, who put in countless hours, developing the spec. Thank all of you for listening. I really appreciate it. And no one has found the treasury API lady yet. So with that, we'll call it a day. Thank you very much.