There is no doubt that the pandemic has pushed the United States into a major economic decline. Many Americans are still out of work and interest rates have taken a nosedive. While some government stimulus plans have kicked in, that alone won’t be enough to make a full recovery.
We need to focus on the opportunities that could be made available through open banking and digitization, which will support the next wave of technology innovators and innovations.
Since the world has been forced to become digital nearly overnight, both individuals and businesses are increasingly likely to transact digitally. That has created further pressure on banks to meet those expectations and expand on the opportunities that are available for startups to create new value streams.
Open banking represents a large opportunity to innovate and transform the scope and scale of the whole financial-services industry. Once a few strong ideas find success and gain traction in the market, consumers will start adopting the technology and open banking will take off. To reap the benefits of open banking, banks need to embrace the new regulations and view them as an opportunity rather than a threat.
People are consuming new experiences and doing so more efficiently, allowing both existing players and new entrants to prosper. Applying these new technologies can enhance all banks’ capabilities and deliver on the expectations of these increasingly tech-savvy consumers.
Although the Federal Reserve and banks deserve praise for getting funding to so many companies during the pandemic, some small businesses have been left out of relief programs. This may have happened because they don’t meet the requirements or because banks are refusing them based on standard pre-Covid criteria. Part of the reason companies like Amazon and Shopify have gone into small-business lending is that they hold key data from businesses (such as cash flow and accounts receivable) that allow them to do it better.
Open banking would unlock this type of data for small businesses and let them share it with other potential lenders. Open-banking infrastructure and data are helping governments around the world better respond to the crisis. We are starting to see signs that governments are starting to use open banking data to help inform their pandemic responses.
For too long, the United States has operated without enough reliable access to financial data and processing ecosystems. Other countries across the globe have long since moved off of such rudimentary tactics as screen scraping and are now working within a regulated open-banking model. We have built so much based on what we have, that it is almost overwhelming to consider what we could build on top of a modern open-banking infrastructure.
The United States has a wide range of market-driven initiatives that will aid in building a platform for open banking in America and keep pace with these other regions, it’s just a matter of time. Now is the time for innovators and corporate leaders to ensure new initiatives and platforms like open banking, are supported and positioned to thrive.
—Clayton Weir is chief strategy officer at FISPAN Services Inc., Vancouver, British Columbia.