Open banking is a new venture for established financial institutions to share customer data with third parties, notably FinTech partners, to bring more value to the customer. There is an inherent risk in sharing this data, but the benefit of partnering with FinTech organizations offers immense value. Notably, customers can benefit by viewing their finances in easy to understand manners, gain budgeting assistance, or get rewards for the ways they spend their money. Financial institutions benefit by bringing tons of value to their customers at little to no cost.
When financial institutions share customer data, they should consider the following:
Best Practices Are Being Established
Standards for open data sharing are being created, but now is the perfect time for executives and directors to get on board in order to stay on the front end of what will be important to their institutions in the coming years. Charles Schwab, Wells Fargo and other major players in the financial services world recently created the Financial Data Exchange, a nonprofit whose mission is “to unify the financial industry around a common, interoperable standard for secure exchange of financial data.”
The reality is that establishing rigorous data sharing practices will require some time and, likely, some failure. By keeping up on industry missteps, regularly educating staff and hiring the right people to help lead the way, executives can get a foot in the door early and guide their institutions to success.
Legal Scrutiny Will Coincide with New Innovation
Data sharing poses opportunity and risk, and both will continue to happen simultaneously. The opportunity of partnerships with FinTech organizations will drive financial services forward, but scrutiny around data sharing and legal requirements will be a major obstacle and consideration. Major data leaks have fueled the flames of public skepticism toward data sharing, which will trickle down to financial services in the form of legal requirements. In a financial institution’s partnership with a FinTech organization, the financial institution will serve as the legal experts in meeting these requirements.
This presents a unique challenge for executives to encourage innovation while still practicing responsible and legal data sharing practices. Industry-wide standards, regular legal briefings and working together with policy makers to establish standards will be important in the coming year.
Hiring Decisions Should Take Innovation Into Account
Simply put, the world of financial services is changing. FinTech partnerships offer so much potential, but can be unnerving to industry professionals who may be seeing more change in the industry than ever before. Legal requirements make this transition even more intimidating, and other technology such as blockchain and an ongoing digital evolution in banking collectively puts a lot on executives plates.
Executives should continue to familiarize themselves with these technologies, but also hire in-house experts to keep up with these trends and help their organizations transition. The industry is changing too quickly for non-experts to keep up with, and finding data, API and blockchain experts to guide these transitions will be important to safely and opportunistically navigating the changing financial services landscape.