Four Reasons Why Every Finance Company Should Embrace Open Finance
Brett Allred is Chief Product Officer at MX.
Do you remember your first compact disc? For me, it was Throwing Copper, the third studio album by Live. It was the first of many. At the time, CD players became the norm, and my binder of CDs became a teenage treasure.
A few years later, Sony released the first portable MP3 player. It was game-changing. But the music industry wouldn’t allow you to transfer music. Music compression technology and increasing bandwidth made music sharing possible but it wasn’t sanctioned. Essentially, it was a closed ecosystem.
In 1999, Napster provided a way to rip CDs and transfer music over the internet. For years, the music industry fought against this, but consumers continued to do it because it was the easiest way to get digital music.
Eventually, the music industry realized it was better off joining the digital music revolution. A pinnacle moment in digital music history was when the Beatles finally acquiesced and allowed their music to be sold on iTunes.
There are a lot of parallels between the music industry then and the finance industry today. Your financial data is much like your old CD library. Each of your accounts is in a separate location and, while there are options to bring it all together into one view, it’s difficult, inconsistent and isn’t supported or authorized by financial account providers.
We live in a closed financial ecosystem in which sharing data means scraping websites, the equivalent of ripping CDs. We are in the Napster age of financial data sharing.
It’s time to evolve as an industry! Just like the music industry evolved and was ultimately able to benefit from music sharing, financial account providers need to evolve and benefit from user-permissioned data sharing. It’s what we call open finance—the ability for users to access their financial data and enable sanctioned sharing with the fintech applications they want to use. This will usher in a new era of personalized financial experiences, incredible innovation and massive industry collaboration to help automate financial management.
Here are four reasons why every financial account provider should embrace user-permissioned data sharing and adopt open finance:
1. Lower Fraud And Security Risks
The common way to digitally access financial data requires users to share their online banking username and password with a third party that will scrape the online banking website for data. Most consumers don’t realize they’re handing out their credentials to someone in addition to the bank, yet they still expect their accounts to be protected and secure. Open-finance APIs eliminate the risks associated with screen scraping and credential sharing.
2. Gain Real-Time Insights And Actionable Data
When financial data is shared versus scraped, financial account providers can get real-time visibility into what is happening in the financial ecosystem—where data is going, who it’s being shared with and how it’s being used. This leads to better understanding customers’ needs and uncovering new use cases and solutions.
3. Reduce Infrastructure Costs
More scraping means more traffic hitting servers. Based on my experience, I believe as much as 60% of online banking traffic comes from scraping and not actual users. By leveraging open-finance best practices, you can drastically reduce this load and get more accurate web analytics from online banking. Open-finance APIs are far more effective and cost-efficient.
4. Increase Customer Satisfaction
As more financial data is shared, companies can gain better visibility and greater insights into their customers’ behaviors and needs. This allows them to create better, more personalized experiences and drive higher levels of customer satisfaction and loyalty. In addition, open finance creates the ability for customers to seamlessly connect to their favorite fintech apps to manage their money. Our research shows 72% of consumers would consider switching their bank or credit union if it couldn’t connect to frequently used fintech apps.
To get started on your path to open finance, here are a few first steps you can take:
• For Financial Providers: Recognize that your data is likely already being scraped by other providers and third parties—and take steps to make that data sharing experience more secure and more frictionless for consumers. Explore how your organization acquires, uses and shares data today, and create your path forward to enable safe and seamless data sharing tomorrow. This may mean building new capabilities internally or finding a data partner to support your open-finance journey.
• For Consumers: Look at your financial accounts and take advantage of the option to link other accounts within one app or view. This will help give you a more complete picture of your finances in a single place, making it easier to manage and work toward your financial goals.
Bottom line? It’s time for the financial industry to evolve and embrace financial data sharing. Let’s give the consumer what they want: more choice, more freedom and more innovation.
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