Imagine instantly getting the best deal on a loan or credit card tailored to your spending habits—no more jumping through hoops or hidden fees. Open banking puts users in control, delivering faster, smarter financial options right when and where they're needed.

The landscape of banking and financial services is transforming rapidly, with open banking at the forefront of this revolution. While Open Banking regulations have been fully established in Europe through initiatives like PSD2 (the Revised Payment Services Directive), the United States has moved at a slower place with relevant rules unveiled in October, 2024. With the rise of fintech solutions and increased consumer demand for better control over personal financial data, this news is long overdue.

But what exactly is open banking, and how will it benefit users in the US?

Understanding Open Banking

At its core, open banking refers to the practice of banks sharing financial data with third-party service providers (with users' explicit consent) through the use of APIs (Application Programming Interfaces). This allows fintech companies, payment apps, and other financial services to offer innovative products and services that cater directly to consumers' needs.

Currently, many American consumers are already familiar with some open banking-like experiences, such as linking their bank accounts to apps like PayPal, Venmo, or budgeting tools like Mint. However, full-fledged open banking would make this process more secure, standardized, and far-reaching, offering numerous benefits for users.

More Financial Control for Consumers

One of the most significant advantages open banking brings is increased control over personal financial data. In today’s environment, consumers are often limited to the services and tools offered by their own banks, which may not always suit their financial habits or goals. Open banking allows users to access a variety of services from fintech companies and other financial institutions, enabling them to make more informed decisions.

For example, instead of being locked into one bank’s savings account, open banking allows users to compare interest rates across various institutions and switch accounts more easily. Consumers are no longer tethered to their bank’s limited offering of services; instead, they can explore the best financial products available across the market.

This reflects a growing appetite for better access to personalized financial services, which open banking could readily provide.

Personalized (and Hyper-Personalized) Financial Services

Open banking creates the foundation for more tailored financial experiences. When consumers grant third-party providers access to their financial data, fintech companies can aggregate that information to create highly personalized services. For instance, budgeting apps can track spending patterns, analyze transaction data, and offer actionable advice on saving, debt management, or investment opportunities. 

AI-driven solutions could use this data to recommend the best credit cards, loans, or even investment strategies based on a user’s financial behavior. For example, someone with recurring expenses on travel might receive targeted recommendations for travel rewards cards with low interest rates. 

Open banking creates the infrastructure for this kind of personalization, enabling better user experiences through intelligent, data-driven recommendations.

A More Competitive Financial Ecosystem

Traditionally, the banking sector has been dominated by a few large institutions. However, open banking levels the playing field by allowing smaller fintech companies and challenger banks to compete directly with larger incumbents. This increased competition ultimately benefits the end user, as financial institutions are forced to innovate, reduce fees, and offer more user-centric products to stay competitive.

For example, many users are frustrated by hidden fees and high account maintenance costs from their current banks. Open banking allows fintech startups to offer more transparent and low-fee options, which could prompt larger banks to do the same. As more third-party providers enter the market, consumers can expect a broader selection of better-priced financial products.

This increased competition has the potential to lower costs for users. 

Enhanced Security and Data Protection

When it comes to personal finances, security is paramount. One concern often raised about open banking is the potential for data breaches or unauthorized access to sensitive information. However, open banking is built with robust security protocols designed to protect consumers.

Currently, many Americans give fintech apps access to their financial data through screen scraping, where the app uses a consumer’s login credentials to access the data. This process is inherently risky as it requires users to share sensitive information with third-party providers, potentially exposing their accounts to fraud. Open banking replaces this with API-based access, which offers far greater security by eliminating the need to share passwords.

With open banking, consumers maintain full control over which data they share and with whom. Regulations mandate that third-party providers must obtain explicit consent from users to access their financial information, and users can revoke this access at any time. This gives users more confidence in sharing their data securely.

Additionally, banks and fintech companies involved in open banking must comply with rigorous security and privacy standards. For example, all data sharing must be encrypted, and providers must be registered with regulatory bodies to ensure they adhere to best practices. Consumer Financial Protection Bureau (CFPB) rules regulate data access and protection within the open banking framework, enhancing trust and security for users.

Faster, More Efficient Services

Another major benefit of open banking is the speed and efficiency of financial services it enables. With direct access to financial data, fintech apps can process transactions, verify identities, and approve loans much faster than traditional banks. 

For example, consider the often tedious process of applying for a mortgage. Typically, this involves providing banks with a mountain of financial documentation, which then needs to be manually verified. Open banking could simplify this by allowing lenders to instantly access a potential borrower’s financial data, cutting down the approval process from weeks to days.

This kind of seamless integration is particularly important as more consumers demand real-time banking services. 

Open banking enables exactly that, helping users avoid delays and streamline their financial lives.

The Path Forward for Open Banking in America

While the US. is still in the early stages of fully adopting open banking, there is clear momentum building. The Consumer Financial Protection Bureau (CFPB)’s new rules will govern consumer financial data rights,  with open banking likely to become more widespread rapidly, offering consumers all the benefits of a more competitive, personalized, and secure financial ecosystem.

The adoption of open banking in America represents a massive shift toward consumer empowerment. From increased control over personal finances to better access to tailored services, reduced fees, enhanced security, and faster transactions, open banking holds the potential to revolutionize the way Americans manage their money. While the regulatory framework continues to evolve, the benefits of open banking for US consumers are undeniable, making it a promising development for the future of financial services.

Find out how Qorbis will use open banking to deliver seamless and efficient banking for consumers and businesses - talk to us today.

A modular approach to delivering a full range of business and financial services means scalability, continuous deployment, and resilient service architecture. The result is the flexibility to meet evolving market needs swiftly and cost-effectively.

In the ever-evolving fintech landscape, the ability to swiftly and cost-efficiently adapt to changing customer demands is paramount. After all, this is one of the driving forces behind why fintech even exists. 

Traditional banking systems, hampered by legacy infrastructure, have struggled to keep pace with the rapid evolution of business customer expectations. In contrast, APIs (Application Programming Interfaces) and microservices have become the cornerstones of fintechs, driving innovation, maintaining agility, and allowing them to respond to market needs with remarkable speed and efficiency.  

In 2021, there were 795 million successful API calls performed utilizing banking APIs. In 2023 – 1.13 billion.  

Open Banking

While banks are catching up, actively expanding their API accessibility to enable seamless integration with third-party services – fintechs are still at an advantage. By offering a unified digital platform, businesses can gather valuable insights into customer behavior and preferences which can inform personalized service offerings and targeted marketing campaigns – and a whole lot more.  

The Flexibility of APIs in Fintech 

APIs are powerful tools that enable different software applications to communicate seamlessly. In the fintech sector, APIs provide the flexibility needed to integrate various services, platforms, and third-party applications, creating a more interconnected and efficient ecosystem. 

• Rapid Integration and Deployment. APIs enable fintechs to integrate with third-party services quickly, allowing them to launch new features and services without a complete infrastructure overhaul. This rapid deployment is crucial in meeting business customer demands promptly. For instance, integrating a new payment method, enhancing security measures or adding a new service can be achieved swiftly through API connections, ensuring customers have access to the latest functionalities. 

• Enhanced Customer Experience. By utilizing APIs, fintech companies can offer a comprehensive range of services within a single platform. This integration leads to a seamless and enriched customer experience. For example, a fintech app can connect with accountancy software, investment platforms, and payment gateways, providing customers with a one-stop solution for all their financial needs. Such a holistic approach not only improves user experience but also fosters customer loyalty. 

• Cost Efficiency. APIs enable fintechs to leverage existing services and infrastructure rather than building new solutions from scratch. This modular development approach reduces costs and shortens development cycles, allowing fintechs to allocate resources more efficiently, focus on innovation and customer satisfaction, and pass these cost-savings onto their clients.  

• Open Banking and Innovation. Open banking initiatives, driven by regulatory changes, rely heavily on APIs to provide third-party developers access to financial institutions' data. This openness drives efficiencies, with a broader range of choices and personalized financial solutions on offer. 

Microservices: The Embodiment of Flexibility and Efficiency 

Microservices architecture represents the epitome of flexibility and efficiency in fintech. This architectural style structures applications as a collection of small, independent services, each responsible for a specific function. These services communicate with each other through APIs, ensuring seamless interaction and integration. 

• Scalability and Flexibility. Microservices allow fintech companies to scale individual components independently, providing unmatched flexibility. For instance, during peak transaction periods, the payment processing service can be scaled up without impacting other parts of the system. This scalability ensures fintech applications handle varying loads efficiently while maintaining optimal performance. 

• Continuous Deployment and Innovation. Microservices facilitate continuous integration and continuous deployment (CI/CD), allowing new updates and features to be rolled out frequently. This iterative approach ensures that feedback from businesses is quickly incorporated. It and improvements are continually made, keeping the product relevant and competitive. The ability to deploy changes incrementally reduces downtime and enhances the overall user experience. 

• Resilience and Reliability. A microservices architecture is inherently resilient, as the failure of one service does not compromise the entire system. This reliability is critical for fintech applications, where uptime and consistent service availability are paramount. Services can be designed with redundancy and failover mechanisms, ensuring uninterrupted service and robust performance. 

• Development Efficiency. Microservices promote a decentralized development process, enabling different teams to work on various services simultaneously. This parallel development accelerates the overall timeline and allows specialized teams to focus on their areas of expertise. The result is enhanced productivity and faster time-to-market for new features and services. 

As business customer demands evolve – in part driven by advances in the consumer space - the fintech industry must remain agile and responsive. APIs and microservices provide the technological foundation needed to achieve this agility. By enabling seamless integration, rapid innovation, and cost-efficient development, these technologies are transforming how fintechs operate and compete. 

Find out how Qorbis’s microservice architecture and use of APIs empower our clients.

We pride ourselves on cutting out the jargon and communicating in simple, easy-to-understand language. But fintech is a jargon-heavy sector - even the word fintech (that’s shorthand for financial technology) is jargon.

Get to grips with what everyone else is really saying with our insider’s glossary - updated regularly.

Application Programming Interface (API). A set of protocols that facilitates communication between two applications. APIs allow the creation of applications that access data from and the features of third parties.

API economy. The ecosystem of APIs. In an API economy, businesses leverage and monetize APIs to create new services, integrate with partners, and enhance their offerings.

Banking as a Service (BaaS). A model that allows a licensed provider to integrate financial products and services into a non-financial service brand’s own environment. This is done using APIs and a white-labeled front end.

Bank Identification Number (BIN). Also referred to as an Issuer Identification Number (IIN). This is the initial four to six numbers on a payment card that identifies the institution that issues the card. BINs are vital to the process of matching transactions to the issuer of the charge card.

Blockchain. A shared database or ledger that collects information into digital blocks. This decentralized approach means the sharing of these blocks of information is easier and cheaper.

Buy Now, Pay Later (BNPL). A short-term financing product that allows consumers to make purchases and pay for them later. BNPL is one of the fastest-growing digital financial products. This is in part due to the speed of approval, term flexibility, low-to-no-interest, and no credit impact if paid on time.

Cross-border payments. Transactions involving individuals, banks, companies, and other entities in which the payee and the recipient operate from different countries. These could be wholesale, retail, or recurring transactions.

CX. Shorthand for customer experience. CX refers to a customer’s entire experience of a brand. It includes the journey from marketing to post-sales service and everything in between.

Cybersecurity. The practice of protecting computer systems, networks, and data from unauthorized access, attacks, or damage.

Digital identity. The electronic representation of an individual's personal information. This is used for authentication, verification, and access to online services.

Digital wallet. An electronic device or software that allows individuals to store, manage, and make electronic transactions. Examples include Apple Pay, Google Pay, and PayPal.

Electronic Funds Transfer (eFt). Any transfer of funds initiated electronically. This includes card payments, cash machine/ATM withdrawals, point-of-sale (Pos), and debit transfers without requiring the intervention of bank staff.

Financial inclusion. The effort to provide access to affordable and quality financial services to all. Some individuals and businesses who are traditionally underserved or excluded from the mainstream financial system benefit most from financial inclusion.

Fintech as a Service (FaaS). When any company uses fintech APIs to embed financial capabilities into their existing applications, products and services. Sound familiar? FaaS is pretty much interchangeable with BaaS, but is fast becoming the preferable term in this fast-growing industry.

Know Your Customer (KYC). Standards used within the financial services industry to protect all parties from risk. This is done through the mandatory verification and authentication of a customer’s identity. All legal and financial institutions must validate their customers’ Proof of Identity (POI) and Proof of Address (POA) to prevent illegal or fraudulent activities.

Metaverse. The next iteration of the Internet. The metaverse is a digital, immersive 3D world that mimics aspects of the physical world using technologies like virtual reality (VR). Research suggests that 25% of people will spend at least one hour a day in a metaverse for work, shopping, education, social media and/or entertainment by 2026.

Open banking. The practice of sharing customer financial information securely. This information is shared with third-party financial service providers through the use of application programming interfaces (APIs).

Payment gateway. An interface between a merchant and the acquirer that allows the acceptance of credit/debit transactions. The technology behind a payment gateway validates card details, ensures sufficient funds, and then enables merchants to get paid.

Payment Card Industry Data Security Standard (PCI DSS). A set of standards that protect consumers’ sensitive data. It is applicable to organizations that store/process/transmit cardholder data either as clear or in an encrypted manner.

Point-to-Point Encryption (P2P). Payment encryption. Specifically, customer account data is encrypted at the swipe and decrypted at either a retailer’s switch, a payment gateway, or by the processor depending on the scheme. 

OS financing. Also referred to as point-of-sale financing. This is an increasingly popular style of financial product that offers customers flexible, pay-over-time installment options when completing a sale via e-commerce. BNPL is an example of POS financing. 

PSD2. A European regulation for electronic payment services that aims to make payments more secure, boost innovation, and help banking services adapt to new technologies. 

Regulated sandbox/Regulatory sandbox. A controlled environment provided by regulatory authorities. This environment allows fintech startups to test and experiment with innovative products and services under relaxed regulatory conditions.

Strong Customer Authentication (SCA). The use of two authentication factors for bank operations that were not previously required. This includes payments and access to accounts online or via apps. It also includes a stricter definition of what counts as an authentication factor.

Tokenization. The process of replacing cardholder data with a random string of characters called Tokens to move sensitive data. This minimizes the threat of fraud or identity theft.

Virtual card. A payment card that exists digitally, rather than as a plastic, physical card. Virtual versions still offers users the same capabilities, though. This includes contactless payments via a smartphone.

White-Label platform. Also referred to as a cleanskin platform. A software platform that can be rebranded by a third party, allowing a bank or lender to put their stamp on a platform. These platforms are generally developed by a third party (often a fintech).

Remember, this glossary provides a brief overview of common terms. There may be more detailed definitions and variations within each term.