Where is the Open Banking We Have All Been Promised?

Open banking has been touted as the savior of financial institutions and consumers alike when it comes to the services that can be offered and can be accessed easily regardless of the vendors and companies involved. Yet in many cases, I see that the promise of open banking is still left unfulfilled due to the sluggish pace at which technology firms have opened their platforms to 3rd parties for integration.

First, let's define open banking:

Open banking is a banking practice that provides third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions through the use of application programming interfaces (APIs). -Investopedia

The key takeaway from that definition is that financial service technology providers, regardless of whether they are providing products to banks, credit unions, or fintech providers need to provide APIs for easy integration of different platforms. Yet in my experience, this is far from what has happened in the industry outside of technology providers paying the most limited lip service to this ideal in order to say that they are an open platform.

The Current State

The state of the industry, at least when it comes to credit unions, is such that the core technology providers allow access to APIs but in a form that is rarely helpful to their clients. The APIs they provide are generally behind where other industries are. For example, the APIs these platforms are offering are still based on outdated SOAP implementations versus more modern API models like REST or GraphQL. In some cases, it is even worse, where these platforms and/or their partners are still using TCP socket-based integrations to handle the transmission of data. For those technology providers that do offer these interfaces, they are rarely documented sufficiently for anyone outside of the organizations that built them to have an easy way of determining how to integrate a service with the platform in question.

I'm not going to name names in this case, as I think there are people within all of these organizations that are truly striving to deliver on the open banking promise. Yet I think those individuals and teams are routinely held back by the competing interests within their organization. On the one hand, clients are demanding modern APIs so that they can interface with new technology providers and fintech companies without being constrained by a vetted set of partners. On the other hand, these financial service technology providers are also trying to protect their established ecosystem of legacy integrations to the other products that they and their preferred partners offer to clients. This is where the concept of open banking starts to fall apart. If financial services technology providers are trying to protect an existing ecosystem of products that clients may want to move away from, they are disincentivized to create open APIs for their products.

The Desired State

In order to achieve a truly open banking environment, financial services technology providers need to put aside their desire to protect their existing products and work on behalf of their clients. What do their clients want? This is what we want:

Modern APIs available to all clients as part of the base technology platform.

Complete API documentation using industry-standard documentation methods such as Swagger, Postman, etc.

A commitment to supporting client development teams when using the provided APIs.

A commitment to keeping pace with current API standards versus allowing APIs to become obsolete.

Some financial services technology providers are closer to achieving this desired client state than others. Regardless of how far along they are though, these providers need to realize that not providing open banking platforms will cost them clients in the future. Clients don't want to be stuck using only one provider's products and they will find those companies that support their strategic objectives while abandoning those that don't.