The U.S. financial services industry is moving toward an open banking environment. APIs have allowed PFM applications to directly access financial data from the bank, and the future of these applications is very promising.
Compared with Europe, where open banking has been established through legislation, the U.S. financial services industry has moved more slowly toward an open banking environment in which customer data is shared with third-party providers (TPP). Some banks in the U.S. already share their data voluntarily, even when it isn't required. This trend is likely to accelerate as banks, their customers and TPPs realize the benefits from open banking.
The regulatory climate in the U.S. has kept a lid on the growth of open banking. The U.S. has extensive regulations controlling the privacy and security of financial information shared among organizations. For example, U.S. regulators require customers to approve of the conditions under which banks can share their information. Progress in the technologies securing the privacy of shared information, identity, and consent is gradually overcoming the fear of privacy loss in the U.S., moving its financial sector ever closer to a true open banking platform.
Open banking platforms are built on application programming interfaces (APIs) that connect banks with TPPs and permit a free flow of information between them. APIs have been in widespread use on the Internet for two decades or more, but until recently were not employed in the U.S. banking industry. Nevertheless, the technical underpinnings of open banking are readily available to U.S. banks at such time as they choose to apply them.
One U.S.-based TPP that has penetrated the banking market is the personal financial management (PFM) tool Mint. It uses customers' bank account information to track their spending and help them reach their financial goals. The earliest PFM tools needed customers’ usernames and passwords to log on to accounts and obtain information. However, the use of APIs has allowed PFM applications to directly access financial data from the bank. The future of these applications is very promising.