Open Banking on the Rise in North America
Team Ripple
Feb 1, 2022
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Open banking is poised to transform business operations and payments transactions across North America. As fintechs and banks explore alternatives to debit and credit card transactions and lean into account-to-account payment networking, education and additional regulatory guidance around open banking will help usher in this new paradigm.

Regions where open banking has already made its mark have seen a rise in competition and a downward pressure on margins. This has driven financial institutions (FIs) to either find new revenue streams or new cost-saving measures, and the emerging open banking landscape—with its burgeoning crypto innovation—has the opportunity to provide solutions to both. While the impacts it may have on banks and payment service providers must be considered, there is ample opportunity for consumers and benefits for the economies to which they contribute.

Let’s take a deeper dive into what open banking is, trends that bolster the prospects of open banking, barriers to success, how crypto and open banking intersect and, finally, what’s on the horizon.

A Primer on Open Banking

Open banking takes place when banks and FIs give customers and customer-approved third parties digital access to financial data. These third parties are often able to initiate payments as well as download and easily share information on account balances, payments, transactions, investments and more. Open banking is already gaining traction in regions like the UK and Brazil.

There are a number of benefits to open banking, such as:

  • Broadened revenue streams through new API-enabled products
  • Improved customer personalization and satisfaction via increased touchpoints
  • Strengthened relevance for FIs by diversifying their client offerings 

Another benefit lies in data transfer in which competitive third-party providers can access bank account and transaction data through APIs. Customers who consent to share this information within the open banking system give providers a better understanding of customer needs, enabling streamlined payments solutions and enhanced user experiences.

Progress Doesn’t Occur in a Vacuum

The trend towards open banking is buttressed by at least two other forces: US consumer demand and the rise of regulatory clarity. In terms of consumer demand, the Open Banking Report notes that with its 14,000+ FIs and a growing number of fintech startups, the United States is likely “the next frontier of the open banking evolution, as its consumers have a growing interest in accessing innovative payment experiences while still retaining control over their data.”

Progress has been made on open banking regulations abroad and banks and fintechs continue to observe and learn as guidance further develops. This is evidenced by the Financial Data Exchange, a group dedicated to unifying financial service providers in North America “around a common, interoperable and royalty-free technical standard for user-permissioned financial data sharing.”

Recently, the Biden Administration issued an executive order on July 9th, 2021 enlisting the Consumer Financial Protection Bureau to create guidelines, making it easier for consumers to transfer banking data. The Canadian government also announced last year, after a three-year study, that they will have an open banking regime in place by the beginning of 2023, and four million Canadians are already using services similar to open banking.

Barriers to Success

The substantial size and mix of the banking and finance sectors has hindered rapid growth and adoption of technologies like open banking. In the US, the landscape of the payments industry has historically been an amalgamation of closed systems that take time to change.

Compounding this, a recent survey showed that 55% of US adults have never even heard of open banking, despite their demand for more innovative, streamlined payment experiences. Effectively educating Americans on the existence and benefits of open banking will be a challenge and key area of focus for the industry.

Open Banking and Crypto: A Dynamic Duo

Open banking and crypto both aim to facilitate faster, more efficient, less expensive options for electronic payments. While open banking can operate outside of the crypto space, the speed, efficiency and transparency of crypto and blockchain technology—in combination with open banking’s vision of securely shared data—can transform existing payment rails into a frictionless, interconnected network.

Since open banking allows access to bank accounts by third parties, this opens up new doors for these third parties to be crypto-first companies that provide overlay services and allow traditional banking to be embedded within the user experience. For example, a customer could have the ability to fund their crypto wallet using their commercial bank account—all in the same app. 

By creating an open network of financial data—bank account(s) information across multiple banks, the balance of the account(s), transactions on the account, branch information—industry players are better able to streamline services and tailor these services to meet the needs of their customers. For example, setting up recurring or one-off payments, or easily validating beneficiary information and other information such as loan offers. 

Crypto solution providers and financial service providers can also leverage these features to create new services, demonstrating their competitive advantage through efficient, modern offerings such as personalized finance management apps, crypto liquidity services, and real-time value transfer. Not only will this transform the experience for both provider and customer, but will also solidify the provider’s place in the traditional banking space.

What’s Next?

The clouds are shifting and new opportunities are appearing on the horizon. But sustained, progressive movement requires support from the entire community—consumers, governments, banks and fintechs—to succeed.

Embracing this emerging market alongside new crypto technologies will allow financial service providers to realize new fronts for growth. There is also potential for companies to leverage crypto-forward products and services for all sorts of digital transactions, like supply chain, treasury, payments, remittances and more. 

Crypto-complemented open banking has the potential to transform payment systems across North America. We’ve seen regions around the world begin to realize the benefits already—particularly in Europe. Similar to other regions, North America has the components to be a massive player in open banking. 

By leveraging innovative tech from the Canadian and US crypto industry, and working together to encourage and support cooperative policy advances, payments innovation across open banking can accelerate into the exploration of new, emerging and yet-to-be-discovered markets.

Learn why financial institutions join RippleNet to create the best payments experience for their customers.

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