Why is open banking so important for credit unions and community banks? (VB On Demand)

Presented by Envestnet | Yodlee

Regulations for open banking data sharing are emerging in the US, and it is critical for credit unions and community banks to prepare now. Learn how the industry will change, how to participate in the new ecosystem, best practices for the transition, and more in this VB Live event.

View on demand here.

In the United States and Canada, the number of financial institutions that offer an API-based interface for collecting financial data with consumer permission continues to grow. This means that these institutions no longer tolerate their customers using a third-party tool to access their data, but actually facilitate it.

“And by making it easier for them to sign up for risk management and positive customer experiences, as well as increased security and liability protection across the data sharing economy,” said Brian Costello, vice president of data strategy and strategic solutions at Envestnet | Yodlee.

The Financial Data Exchange, FDX, the standards organization for the interoperable standard of consumer-permitted financial data exchange, is growing in membership and the number of installations of its system. Costello also points out that this evolutionary step, from consumers sharing their data with third parties via their online banking credentials, to data being shared by APIs published by financial institutions, shows that the open banking movement is going very well in the US and Canada.

Another clear indicator is that progress is also being made at the regulatory level. The Consumer Finance Protection Bureau (CFPB) has indicated it will deliver an essentially final draft ruling on potential new data-sharing regulations in April.

Why this is important for community banks and credit unions

Community banks and credit unions know their customers well. In smaller centers they live and work side by side with them. As a result, they understand more about their lives and circumstances than just financial behaviors and are able to tie it all together to offer hyper-personalized advice and services.

Using the community financial services approach to digital engagement is a huge opportunity for these organizations, says Costello. It allows these institutions to expand, broaden and deepen their knowledge of their clients and offer the same personalized services faster and safer in the pandemic.

“Because of the technology gap, community banks have been denied opportunities that Wall Street banks have enjoyed for years,” he says. “That’s why we’re optimistic about the opportunity for community banks and credit unions to get involved in open banking.”

In the past, community banks have lost in several respects. They source their technology from a service provider, which has borne some of the operational and security risk — but because of that, community banks also have an opportunity cost. They will not be able to participate and reap the benefits of consumer-permission data sharing in a more secure and operationally resilient manner if they cannot do so through their technology provider – meaning their customers and members will not be able to access services that larger banks may offer, such as financial coaching, automated savings plans, or payment options that may make more sense for them.

New product opportunities

Another key indicator of the emergence of open banking is the explosion of new solutions that leverage consumer-sanctioned exchange of financial data to provide value-added services – either directly to the consumer or to an advisor, lender, or insurer. And these come from both established players and new market entrants.

“These solutions increase the level of innovation, increase competition and give customers more opportunities to achieve positive financial results,” says Costello. “That’s because of the evolutionary steps in the way the data is shared. It makes it safer and more comfortable for these companies to enter the business, for their executives to green-light the solutions, and for venture capital firms to start investing as they see greater potential for a positive return on that investment.”

Some of these companies also use their customers’ data to align their services with social, environmental, and other value-based ideals that are important to customers who want to engage with brands that align with their values.

Or consider the new set-it-and-forget-it savings tools that are helping people whose living expenses pretty much match their paycheck and are being challenged to start saving. These tools monitor their cash flow, learn their behavior, and figure out when and how to make a hassle-free withdrawal, even if it’s just $5 — which adds up. At the same time, these apps help consumers find ways to improve their financial situation.

“This is not only driven by access to the data, but also by improvements and enhancements in research into consumer behavior and behavioral economics and psychology,” explains Costello.

Another popular category of applications focuses on better payments – from peer-to-peer payments to cross-border payments to merchants. Open Banking makes payments more secure by eliminating the need to enter credentials and making payments faster to access.

The third major category is investing – because financial advice shouldn’t just be for the rich. Consumers can now begin self-directed investing through apps that guide them based on their financial data, covering everything from retirement planning to cryptocurrency market exploration, arbitrage and more.

These types of apps are based on the biggest consumer trends and have been inspired and made possible by the move towards Open Banking. They’re the kind of products and services that customers are looking for in their financial institutions — and they can help make community banks and credit unions significantly more competitive in a crowded marketplace. But it’s important to be prepared for the transition.

“The Technology Gap and the Regulatory Gap. addressed, so now really is the time,” says Costello.

To learn more about how Open Banking is changing the financial services industry and competitive landscape, what opportunities regulatory changes are opening up, and how credit unions and community banks can make the transition seamless, don’t miss this VB Live event!

View on demand here.

You will learn:

  • Expectations for open banking in 2022
  • Ways to combine traditional data aggregation methods with new standards
  • How other organizations are preparing for Open Banking
  • What you can do to be ready for Open Banking


  • Stephen C. Bishop, Chief Operating Officer & EVP, Old Missouri Bank
  • Jeff Schulte, SVP Data Strategy & Technology, Envestnet | Yodlee
  • Lee Weatherington, Senior Strategy Director, Jack Henry & Associates
  • Seth Colaner, Moderator, VentureBeat Why is open banking so important for credit unions and community banks? (VB On Demand)

Chris Barrese

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