Giving Members the Open Banking Services They Want

Open banking is changing how people think about financial institutions – including credit unions – and transforming how these institutions operate. By enabling third-party financial services providers to access a credit union member’s data through application programming interfaces (APIs), open banking increases transparency, facilitates collaboration and creates new financial product opportunities.

Credit unions that choose to give their members digital open banking app experiences need to understand the industry landscape and regulatory environment. They also must learn how to protect all transactions and personal financial information in this larger and more complex cybersecurity threat landscape.

Bringing Open Banking to U.S. Credit Union Members

Unlike other parts of the world where regulatory directives are the driving force behind open banking, in the U.S. it is industry-led initiatives that are fueling adoption. Studies have shown that U.S. consumers are generally receptive to open banking.  FT Partners Research reported that the highest amount of interest comes from millennials and Gen Z. A study from Deloitte showed that consumers with more than $250,000 in annual income are the most receptive to sharing their financial data and to the idea of open banking in general.

To serve this market, several U.S. financial institutions have kicked off open banking projects aimed at delivering more customized and convenient services. The 208-member U.S.-based Financial Data Exchange (FDX), a non-profit organization, has developed a standard API to facilitate secure data sharing in both Canada and the U.S. This API has been adopted by at least some members of the American Bankers Association.

Additionally, the ABA has been working with the CFPB to address questions about data sharing and aggregation. Meanwhile, U.S. organizations like the Financial Services Information Sharing and Analysis Center (FS-ISAC), National Automated Clearing House Association (NACHA) and the U.S. Treasury Department are moving toward standardizing the codes and protocols that enable open APIs to facilitate the fast, secure exchange of information.

Even without a federal regulatory framework in the U.S., faster-moving financial services newcomers have already developed more user-centric services that leverage open banking APIs. Examples include employing financial data to help people get a clearer and more comprehensive view of their finances, make faster direct digital payments, or receive personalized recommendations about deals and investments.

For credit unions that are early in their digital transformation, partnering with fintech companies and technology integrators can accelerate the transition to more customer-centric banking operations. One example of this is simplifying adoption of the necessary open API functionality so that a mobile P2P app can access credit union members’ financial data, enabling them to access their funds more easily.

Partnering in this way helps credit unions remain competitive in an evolving market and do a better job of putting member deposits to work. For instance, they can use their strong balance sheets to invest in working with fintech partners on products aimed at members who are interested in personal term loans as well as home equity loans. Among other things, they can collaborate on the necessary screening models and algorithms for identifying potential borrowers.

Some credit unions will be better positioned to embrace open banking than others, especially those that have already moved to cloud-based core banking platforms. These institutions have more easily navigated the pandemic by meeting the meteoric move to online and mobile banking channels. Now, they can more easily adopt new technologies including third-party open banking offerings.

As they connect with today’s growing open banking ecosystem, credit unions must remember that they continue to bear sole responsibility for authentication and identity management. Security must be embedded into their earliest product plans, and it will be more important than ever to employ best practices for frictionless multifactor authentication, detecting fraudulent transactions and protecting against cyberattacks.

Securing Open Banking

Credit unions that adopt open banking must learn how to secure their environments. Gartner predicted that, by 2022, API abuses will be the most frequent attack vector against enterprise web applications. Fortunately, technologies are available that leverage artificial intelligence and machine learning to protect account entry points with frictionless authentication, and detect fraudulent transactions and protect against cyberattacks throughout the member journey.

Adaptive authentication solutions are available that work behind the scenes to detect real-time inputs and automatically adjust verification methods according to risk levels. Easily scalable, they can be implemented as a service in the cloud or on premise, and are compatible with a wide variety of authentication methods to ensure a seamlessly adaptive, end-to-end member journey. When authentication platforms are combined with risk management and fraud mitigation solutions, cyberattacks like phishing and zero-day malware can be stopped before they happen. These solutions facilitate a better understanding of who legitimate users are while keeping fraudsters away, as part of a single, easy-to-implement technology for responding to an ever-expanding threat landscape.

The goal is to make trusted protection simple for security teams to manage and more intuitive for users to navigate. During each session, AI algorithms are used to collect and analyze behavioral biometrics data including typing speed, swipe gestures and navigation patterns. When behaviors suddenly deviate from the norm, ML quickly identifies them and automatically launches preventative measures such as logging customers out or requesting that they re-authenticate themselves. Even with relatively little data, today’s AI-based platforms can use ML techniques to identify and get ahead of new threats.

These and other measures ensure that credit unions can maintain the required digital security levels to protect their open banking offerings without creating friction for the user. Only by combining the financial products members want with the convenient and intuitive experiences they demand can credit unions take full advantage of open banking to expand their footprint and increase member loyalty.

Juan Camilo Arenas is the Business Development Director of IAM Consumer Authentication for Americas with HID Global, a provider of physical and digital identity verification solutions headquartered in Austin, Texas.