Is the US ready for Open Banking?

Open Banking in the UK and Europe was introduced in 2018, with regulations mandated by the EU’s Payment Services Directive 2 (PSD2). Six years later, has it caught on in America?

Is the US ready for Open Banking?

The premise was to level out the competition playing field, allowing fintechs greater access to consumer payments and funds and dismantling the dominance of the few large banking providers- all in the interests of the consumer.

Greater competition would spell greater outcomes for the end user and all the above was to be achieved via Application Programming Interfaces (APIs).

These were to be the conduits of power, the means by which account and payment data could be shared between banks and third parties at the behest of the customer.

Fintechs could bring a whole tranche of innovative products and services, revolutionising the retail industry and even bolstering traditional banks’ offerings, through newly forged banking models and platforms.

It was always of interest to see how and whether such developments might catch on across the pond, whether market dynamics would translate into demand for a democratisation of banking services, or whether the powers that be would see fit to mandate any such changes.

Well, late last year, America’s Consumer Financial Protection Bureau (CFPB) proposed regulatory changes of exactly this sort.

Personal Financial Data Rights, in line with Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, were to provide consumer with access rights to their financial information and this proposal was to set out clearly the standards to support this right.

Boiling down to APIs for data sharing, at its heart was improved and increased access and competition within the banking sector between traditional banks, new fintech providers and customers in order that the latter may control, understand and improve their financial provision.

At the time of going to press, details are being consulted and ironed out vis-à-vis the standards via Financial Data Exchange (FDX).

The main thrust is data sharing, as opposed to payment initiation, which may come later. But all that aside, is America ready for this?

According to Token.io CEO, Todd Clyde, “The good news is that the US payment landscape is ripe for innovation, with Pay by Bank ideally positioned to fill a significant gap in the US market for low cost, accessible, secure and instant payments where cheques, traditional bank transfers and, in many cases, cards are currently the de facto options.”

In the US, it is less about consumer appetite – although card loyalty programmes are exceptionally sticky in America, and more about the markedly different banking landscape in the US, when compared to somewhere like the UK or Europe.

According to McKinsey, smaller financial institutions, including credit unions and community banks, account for 87% of US financial institutions and around 20 per cent of assets held.

Great stakes

Intentions, whether pro – or anti – change aside, the technical transformation for these kinds of institutions is going to be huge. And then there is the cost implication.

The CFPB said, as reported in the FT, “There are more than 9,000 banks and credit unions across the country, most of which serve as data providers, as do numerous non-depository financial institutions.”

Asking just one tenth of these to connect to each other as well as the largest US institutions might present something of a challenge.

All 9,000 becomes a tall order of epic proportions, the heights of which scream major expense with no immediate revenue incentive, rather the disintermediation of healthy card incomes.

As Clyde says, “US payment processing costs are high, while speed lags: card networks often require 3 days to settle transactions, and interchange fees are among the highest globally, ranging from 1.5% to 3%”.

But ultimately, were those high processing costs to be lowered in lockstep with speed being increased, this could also benefit banks, not just merchants and customers.

Consumer Financial Privacy and third party guidance

Open Banking and data sharing concepts, however, like APIs, are not wholly new to the United States.

The Gramm-Leach-Bliley Act was introduced in the US in 1999, requiring the Federal Trade Commission (FTC) and financial institutions or any company that offers consumers financial products or services, including loans, financial or investment advice or insurance, to ‘explain’ their information-sharing practices to their customers.

Further to this, in 2023, guidance was issued for banking organisations on managing risks associated with third party relationships.

A collective of agencies: The Federal Deposit Insurance Corporation (FDIC), The Board of Governors of the Federal Reserve System (FRB) and the Office of the Comptroller of the Currency (OCC) worked closely to issue the guidance, providing principles supporting a risk-based approach to third party service integration.

This includes the sharing of data with fintechs or data aggregators.

As was soon clarified in Europe when APIs became a buzz word in the crowded Open Banking news sphere, APIs are nothing new, and even small regional US banks have used them for years for internal processes and links between systems.

In fact, Cornerstone Advisors’ 2023 What’s Going on in Banking report stated 63% of credit unions had deployed APIs and cloud computing.

There are other market forces present that have and will continue to provide groundswell to support the shift to Open Banking as well.

Pay by Bank, as mentioned has been gaining in popularity since its launch by JP Morgan and Mastercard in 2023, offering a digital account-to-account service at checkout, with a direct link from a customer’s bank account to the service or product provider’s via web or app.

With speed must come clarity

What’s more, Instant has come to town and the US populace has been getting to grips with FedNow and RTP, Clyde references Capgemini’s Global Payments Report 2025 when he says that banks stand to gain alongside consumers and merchants from instant payments.

“With 9,000 banks implementing instant payment methods (ACH, TCH and FedNow), the report suggests that combining ‘adjacent and mutually reinforcing’ APIs and instant payments can help financial institutions ‘unlock new revenue streams and enhance customer experiences’.”

Clyde makes a point of the success of Pix in Brazil and UPI in India and Juniper Research projecting A2A volumes to exceed 186 billion by 2029, indicating huge acceleration in global volumes.

“As European banks face a 2025 mandate to fully support instant payments, the global influence of this potent combination is poised to expand even further,” Clyde continues.

Payments are simply on the move, and to a large extent these mandates are only setting in train what the market is likely to demand in due course.

With ISO 20022 bedding in globally as well in 2025, this will only add to the momentum behind the terms swift (lower case, excuse the pun), choice and control – the hallmarks of Open Banking.

McKinsey says A2A payments have been relatively slow to catch on in the US due to the absence of a regulatory framework, hampering any banks’ ambitions to flex muscle in this area.

With such a framework in place, “the data provided by Open Banking could help generate a wide range of financial services, including enhanced insights and analytics [to banks and institutions]”, as stated in McKinsey’s report, ‘The role of US Open Banking in catalysing the adoption of A2A payments’.

But McKinsey does set out the appeal of A2A payments for merchants, being “low cost, irrevocable, and more secure than other payment methods, significantly reducing fraud and charge-backs, and [eliminating] interchange fees”.

It says consumer-to-business payments are and will remain a key target for A2A offering an estimate that US A2A payments may exceed $200 billion in volume by 2027.

This would be based on remote consumer POS purchases and excluding bills. The figure would represent a CAGR of 19% and “a roughly 5% share of US digital commerce spend”.

It says consumer-to-business payments are and will remain a key target for A2A offering an estimate that US A2A payments may exceed $200 billion in volume by 2027.

This would be based on remote consumer POS purchases and excluding bills. The figure would represent a CAGR of 19% and “a roughly 5% share of US digital commerce spend”.

Juniper Research projects A2A volumes will exceed 186 billion by 2029.

Dealing with legacy

Unrealised potential certainly exists. But legacy constraints will have to be overcome long before the knocks of opportunity can be heard through the freer flow of banks’ data.

A 2023 survey report published by Forbes Insights and Thought Machine found legacy infrastructure constraints were preventing banks from linking and deriving insights from their own customer base, let alone sharing and receiving data from others’.

Additionally, longstanding core banking partnerships may need likewise to be upgraded, and in some cases this presents contractual stumbling blocks.

It found that 63% of banking respondents said having “vast caches of customer data” would present a great competitive advantage, and 59% said legacy infrastructure was holding them back in this respect.

To add more context, and to highlight an element of shared burden across incumbents and neobanks, hitherto screen-scraping has been mostly used to gather data for sharing by fintech services.

This method ranges in sophistication but captures data from a ‘screen’- app or other interface- and pastes it onto the application in question.

It is widely deemed a sloppy and unsecure means, often capturing too much information without rigorous enough privacy or security controls, and a key part of the FDX API standard is to eliminate and replace its use.

Open for business

It is a mixed bag- of demand Vs. command, consensus Vs. capability, technology Vs. culture but the news (whether good or bad and even that would depend on whom you ask and perhaps when) is that Open Banking America is happening.

America is opening its banks.

According to INNOPAY Open Banking Monitor 2022, some US banks were leading the charge with APIs for Open Banking means and it reported that North American banks were contributing 14% to the Open Banking market, calling out Citibank as a key contributor, alongside US Bank,

Wells Fargo, Cross River Bank and Capital One for more functional (as opposed to open) API scopes.

The use cases developed were interesting, given the developments were market-driven and not mandates and investment and foreign exchange APIs offering access to data and currency rates proved ripe for development.

Says McKinsey, “A regulatory green light would be a big change for banks, given the size of the market- payments revenues are projected to reach $800bn in North America and $3.3 trillion globally by 2027.”

Should the US hold back the river to manage costs or go with the payment flows to spring new opportunities?

Clyde reminds us in July 2024, there were over 6.5 million users of Open Banking-enabled payments in the UK, “That’s 10% of the population and an increase of 58% users since July 2023.”

Deadlines may well be missed and we all know that Europe, for all its PSD2 proclamations, is still lagging in achieving quite all its Open Banking glory goals.

Yet still progress continues, times do change and generally, it does work out and work well.

The US is a highly complex market with huge extremes between the biggest banking hitters and the smallest community players.

Yet the concepts behind Open Banking are ingrained (in some cases pre-dating those of PSD2) and the technology is ripe for the roll-out.

It will be an almighty shift to connect the many thousands of community banks but the momentum has picked up with the drive towards real-time, A2A payments, mobile banking and more.

It is only a matter of time…

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