One of fintech companies’ most disruptive influences is not necessarily taking away primary deposit relationships, it’s how they motivate consumers to pick and choose apps for all kinds of services. Younger consumers especially are quite comfortable selecting apps that offer the most relevant value to them. A 2022 study by Cornerstone Advisors illustrated this by finding that Gen Z and Millennial households may have up to 40 different banking relationships.

This is why Open Banking is poised to become the new banking influencer.

What is Open Banking? Think about it as a dynamic business model designed to enable third parties’ access to banking, transaction, or other data. Its underlying technical components are Application Programming Interfaces (API) able to access information stored in your core banking system or services offered by external parties.

The model often has a consumer consent and validation to allow component access to their account data. It also incorporates governance and risk management policy considerations for banks overseeing open banking relationships and transactions.

Open Banking is a means of extending your digital banking services and placing your brand in the center of your customer’s banking interactions. For that reason, it should be a key area of investment in your digital transformation playbook.

Consumers continue to value traditional banks, especially community banks, as evidenced in a recent study where community banks gained market share across all generational cohorts. Yet, a core banking relationship today is not enough. Consumers want to connect the dots in their financial services lives and what better place to provide that connective network than their local bank?

In addition, open banking strategies are two-way interactions. This offers an opportunity for your bank to leverage services that enhance your products such as loan calculators, discount finders, and other value-add services consumers can conveniently access via API through your mobile app.

For example, Central Bank of St. Louis has modified their mobile app to offer fractional equity investing at a level customers feel most comfortable with, such as $50 a week. They believe this strategy broadens their appeal to customers who aren’t attracted to low-rate savings plans. Eastern Bank of Salem offers a service called “Eastern Give for Good”, which gives their customers access to research non-profits that represent over 1.3 million causes nationwide and then use their mobile banking app to make one time or recurring donations with instant digital receipts.

How can you participate in this emerging category of banking? Here’s a few best practices:

  • Ensure that your banking architecture supports API integration and has a governance model in place for access.

  • Review your access protocols, paying close attention to any areas of friction in the user experience.

  • Examine your current product set and determine which ones could be enhanced through an API integration with a fintech service.

  • Participate in enabling popular fintech apps like investments, health savings accounts, or budgeting services.

Attracting and retaining customers in today’s diversified fintech environment means meeting customers’ expectations for their core banking relationship. Helping consumers access the fintech services they want to use without needless friction can be a powerful competitive advantage for community banks of any size.

Incorporating open banking into your digital transformation roadmap ensures that in the future, your bank customers see your brand as a vital link to the expanding world of fintech-led services.

Patricia Hewitt, PG Research & Advisory Services