Merchants Ready For Open Banking — And Its New Laws — To Impact US Rollout

In its March 2020 brief “Developments in Open Banking and APIs: Where Does the U.S. Stand?”, the Federal Reserve Bank of Boston said, “To date, U.S. regulators have taken a more hands-off approach by issuing non-binding guidelines, thus allowing industry stakeholders to pave the way forward. U.S. regulators acknowledge that although there is a market and demand for open banking, the current regulatory structure prioritizes consumer protection.”

That establishes strong roots for open banking demand in America, while also giving a nod to its inevitability here, and soon. One need only look to the U.K. for a foretaste.

“A September report found that the number of open banking users in the U.K. doubled to more than two million during the six months preceding the study, for example. This figure includes new users of online banking platforms or money management FinTechs, services that are covered under U.K. open banking rules and that provide holistic views of users’ finances by sharing data among multiple financial entities,” according to PYMNTS’ latest Merchants’ Guide to Navigating Global Payments Regulations, done in collaboration with Ekata.

Access to APIs and the dynamic personalization enabled by open banking and data sharing are the new frontier in banking. The Merchants’ Guide to Navigating Global Payments Regulations is a rich resource on the topic, as merchant data steps into the spotlight.

Artisanal APIs Derive From Deep Merchant Data

Open banking, in brief, securely shares and analyzes data allowing financial institutions (FIs) and FinTechs to iterate and ideally create wonderful new money products that people will love. Merchants are central to this plan, as are banks, for their deep knowledge of consumers.

Building on that trust with platform tech and artisanal APIs is the next step.

“Open access to payment APIs allows merchants to give their consumers additional options during checkout. Consumers can now use their bank accounts to make payments while also viewing the account balance directly,” Arjun Kakkar, vice president of strategy and operations for Ekata, told PYMNTS. “And that is merely the tip of the iceberg — merchants can offer checkout options way beyond our imagination that could optimize customer value creation.”

Considering that “60 percent of consumers worldwide now assert that they are turning to their most trusted brands as the health crisis continues, this indicates that merchants may need to more closely monitor digital privacy and open banking standards to make certain their data storage and protection practices are up to speed,” per the Guide.

The U.S. isn’t in the lead here, which is okay. It’s part of that “stand back” posture the Boston Fed noted in its March brief. However, “certain parts of the world have already seen the value of this approach,” Kakkar said. “For example, the government-backed Unified Payments Interface is one of India’s most popular eCommerce payment methods. Online merchants realize that a frictionless and secure checkout experience is one of the best ways to earn consumer trust. And that is not all. The Baymard Institute pegs the average shopping cart abandonment rate at almost 70 percent, and friction reduction also implies revenue upside.”

Hurry Up And Wait

In these situations, it’s the suspense that gets you. When?! Not being prepared also gets you.

“Digital payments and banking surges are prompting consumers to more closely examine how online platforms are using the information they share — and to consider who is responsible for the security of such details,” the Guide notes. “Research suggests that more consumers are expecting merchants to tackle this task, with 90 percent of American consumers stating that companies and government entities should be safeguarding their digital data.”

Don’t let the lack of hard law in the U.S. fool you. Regulators here (and obviously abroad) are quite serious about the security of open banking. As the new Merchants’ Guide to Navigating Global Payments Regulations states, “It is thus imperative for merchants to thoroughly monitor and analyze open banking developments. Utilizing the data transparency and the third-party collaboration that open banking has made possible can help merchants craft personalized offerings and services that can, in turn, allow them to build more trust among their targeted customers, but consumers must first trust merchants enough to provide this information.”