US fintechs, banks cite data security as biggest Open Banking challenge

Two-thirds of US financial services providers either have launched or are preparing to launch Open Banking initiatives within the next 18 months, but said that data security and privacy were the biggest challenges they faced in doing so, according to new research.

The 207 decision makers from US banks, wealth management, and fintech firms who took part in the study, published by Envestnet Yodlee, also agreed that more regulation is required.

In addition to the 66% of financial services providers with plans in the works to launch Open Banking initiatives, 56% of respondents said they have, or expect to, phase out screen scraping within the next 18 months.

The study revealed that while 99% of those surveyed believe that Open Banking provides an opportunity for their organisation to leverage, they also think it comes with risks, with 83% seeing either ‘moderate’ or ‘high’ risk from introducing Open Banking.

When respondents were asked what the biggest challenges are in adopting an Open Banking strategy, 48% said data security and 39% identified privacy. However, only 8% felt that a lack of openness to partnerships was a challenge.

The study found that 81% of the decision makers polled think that consumer financial data access and sharing could benefit from greater regulatory certainty.

Speaking to Open Banking Expo about the findings, Chad A. Wiechers, senior vice president of data acquisition and management at Envestnet | Yodlee, said: “The old way of gathering data for the industry is transitioning away from screen scraping and credentials-based access, to this new, what we call Open Banking paradigm of tokenised, credential-less access.”

According to 92% of respondents, consumers are the “ultimate beneficiary” of Open Banking.

“Even though it’s going to create a bit of risk and concern… it ultimately is going to benefit the end user/consumer from a privacy and security, safety and soundness perspective. I think it is going to open up the opportunity for more consumer participation for those that may have been concerned about sharing their credentials,” Wiechers added.

Aside from consumers, when asked who would benefit, more than half of fintech decision makers and bank leaders said that the financial services sector will be the primary beneficiary. Among fintech leaders 54% felt they would benefit the most, rising to 57% among bank leaders who felt that the “combination of global, national and regional/community banks” would benefit the most from Open Banking.

Speaking about the timing of the study, Wiechers told Open Banking Expo: “We’re eagerly awaiting the Consumer Financial Protection Bureau, the CFPB, to provide a rulemaking under 1033 Dodd-Frank [Act], which will hopefully establish some clarity with respect to an individual’s data rights around accessing their financial details and information from the data providers and holders.

“I think it was timely given where the market is today,” he said.

Respondents were also asked how important the advancement of Open Banking will be with regard to several factors, including when it comes to generating new business models or revenue opportunities (83%), fuelling customer acquisition (78%), and expanding access to underserved or new target customers (76%).