Welcome to Part 1 of this new Connectivity eBook, covering everything you need to know about connectivity. In this first part, we cover why connectivity is important for consumers and financial providers and a primer on different connectivity methods, including screen scraping, banking APIs, OAuth connections, etc. Check back later for additional chapters as we add more to this resource!
Chapter 1: Why Connectivity is Critical
Connect the dots. We’ve all played this puzzle game at some point in our lives. At first glance, you see a disjointed series of dots. But, once you take that pencil and connect them, the picture becomes clear. Consumers face a similar puzzle when it comes to their finances.
The average consumer has at least 5 or more financial accounts with various banks, credit unions, and other financial providers. This disjointed money experience leaves consumers — and the financial providers who serve them — with only part of the picture.
Without connecting those various accounts and sources of financial data together, consumers may struggle to truly understand and manage their finances. And, organizations face significant blindspots when it comes to delivering the right products and services to meet consumer needs, targeting consumers with the right messages, and accurately predicting and preventing churn. This highlights the crucial role of reliable and secure account aggregation.
Creating a Competitive Advantage with Connectivity
Consumers have more choice than ever. In the U.S. alone, there are more than 4,500 banks and another 4,500+ credit unions — in addition to hundreds of different credit cards, lenders, fintechs, and payment apps.
With a myriad of financial accounts spread across financial services providers and little patience for slow or subpar experiences, how can you ensure your organization is top of mind and top of wallet for consumers? Financial providers who will win in today’s competitive market are those who offer an easy way for consumers to keep sight of their full financial picture with connected, data-driven experiences.
Forty-four percent of U.S. adults have used digital tools to bring different financial accounts into one view. This account aggregation allows them to consolidate their finances into a single view rather than needing to login to multiple accounts to see what’s going on with their finances.
By enabling consumers to easily connect all of their financial accounts into a single place, financial institutions can drive higher levels of engagement, deliver more personalized experiences, and gain greater intelligence about their customers. Ultimately, this can translate to higher deposits, loans, and interchange revenue, as well as longer term retention.
Higher Engagement = Higher Deposits
Wherever that single view of their finances lives is where they will engage most often. MX data shows consumers who connect at least one or more external financial accounts are 48% more likely to be digitally active a year later than those who don’t. At the same time, 72% of consumers would likely seek out a different bank or credit union if their current provider couldn’t connect their financial accounts to preferred financial apps or other online accounts. By making it easy to connect external accounts within your banking experience, you can drive higher engagement. And, consumers who engage regularly and often with mobile and digital banking services are more loyal, have less turnover, and maintain higher deposit balances than less engaged consumers.
Better Personalization = Better Retention
Nearly half of consumers (47%) expect greater levels of personalization in banking than ever before. A recent Zendesk survey also found 72% of consumers said personalization is “highly important” to them and 77% of banking leaders said it leads to increased customer retention. But, if you only have some of that data, are your personalization efforts meeting the mark? Fifty-three percent of consumers expect financial institutions to use the data they have about them to personalize their experience. With a connected view of consumer financial data both inside your organization and from aggregated accounts, you can deliver a better experience that meets consumer demands for personalization while driving increased retention.
Increased Intelligence = Improved Outcomes
At the end of the day, it’s all about the data. Connectivity makes it possible for organizations to gain access to larger sets of consumer-permissioned financial data, which fuels intelligence and innovation across nearly all areas of the business. It enables financial providers to gain a holistic view of spending behaviors, patterns, and preferences and better understand their customers so they can increase engagement, improve outcomes, and drive growth. In fact, Forrester Research shared that financial institutions using data to tailor their services and communications see up to a 15% improvement in customer retention rates.
What is Open Finance?
While the ability to connect accounts has been around for decades, not all connectivity experiences are created equal. Historically, connecting an external account relied primarily on screen scraping or credential sharing, which requires consumers to share their login credentials to link their data. However, it’s often a less reliable and less secure method to access financial data.
Enter Open Banking and Open Finance. Open finance application programming interfaces (APIs) allow consumers to access their transaction data without the need to share usernames and passwords, replacing credentials with tokens. This creates higher levels of security, faster speeds, and higher connection success rates. And, it lays the groundwork for a truly open data ecosystem — one where data becomes the fuel that powers new innovation, new insights, and new intelligence.
With reliable access to data, financial institutions, fintechs, and their consumers can better understand and do more with financial data. Companies that have embraced Open Finance and the use of APIs to enable data access are already seeing the benefits. It enables:
- Better Fraud and Risk Management: By leveraging an open finance API rather than screen scraping, consumers never have to share their username and password, and financial providers eliminate the risk of sharing credentials.
- More Accurate Customer Profiles: Financial providers can gain access to real-time permissioned financial data from their consumers. They can easily see where consumers are sharing their data and why it is being used. This helps identify product and partnership opportunities, and make segmentation and targeting more accurate to ensure consumers get the right offers and messages to meet their needs.
- Enhanced Customer Experiences: By putting consumers in the driver’s seat, financial providers can build trust and improve relationships, leading to greater customer satisfaction and loyalty. Consumers have greater control over their financial data with the ability to connect and share their data on their terms. They can also more easily manage and revoke access to their data at any time.
- Personalized Services: By enabling consumers to easily connect external financial accounts, businesses can gain greater insights into their customers, better understand specific customer needs or preferences, and tailor their offerings accordingly. For example, a bank may offer investment opportunities to customers who have a higher disposable income, or provide budgeting tools to those who struggle to manage their finances. By offering more personalized services, businesses can create a stronger connection with their customers, leading to increased loyalty and retention.
- Data-Driven Decision Making: Businesses can gain insight into trends and patterns that may not have been apparent before. This can help businesses identify new opportunities, optimize their operations, and make more informed decisions about product development and marketing strategies.
As financial institutions and fintechs look at ways to more effectively engage consumers and, ultimately, grow and retain deposits, it starts with reliable connectivity. Open Finance gives consumers and financial providers better access, visibility, and control into who has access to financial data.
With modern, open finance APIs, financial services providers can unlock even greater value from consumer-permissioned financial data. Previously, organizations could only tap into held data — the data they have within their core systems about customers — to understand and serve their consumers. With open banking, financial providers gain access to consumer-permissioned data from banking accounts, such as checking and savings accounts, outside of their organization. And, now with Open Finance, it’s possible to gain a true 360-degree view of customers with access to consumer-permissioned data across all types of financial products and services, including wealth management, investments, credit cards, loans, and more.
Chapter 2: Your Primer on Banking APIs, OAuth, and Screen Scraping
There are several ways that financial institutions and fintechs can enable consumers to link their financial accounts today. But, as we shared before, not all connectivity experiences are created equal.
Understanding Connectivity Methods
Here’s an overview of the primary connectivity methods used today for data sharing and account aggregation:
1. Screen Scraping
Screen scraping, or credential sharing, is the process of gathering data from one app by inputting user credentials (such as username and password) and displaying that data in another app. Screen scraping requires consumers to share their username and password with the data recipient to gain access to their data.
The biggest downside to screen scraping is that the process relies on the other institution’s website structure, which becomes problematic when scraping happens without coordination with that financial institution. This means organizations are constantly fixing connectivity issues resulting from web updates, changes in login procedures, etc.
Connections also break every time a consumer updates their username or password. It also means that website downtime results in loss of connectivity. In addition, screen scraping results in slower connections compared to APIs.
On the other hand, the financial institutions who have data being scraped don’t always know who is capturing their data and for what purpose. And, it creates added risk for both the institution and consumer as credentials are freely shared with third parties. Scraping can also make it really difficult to decipher the difference between permissioned activity and possible malicious activity.
2. Whitelisted IPs
Whitelisting IP addresses is still a form of screen scraping. However, instead of allowing any app to scrape data, this method allows a financial institution to “whitelist” known third parties and sanction data sharing with those specific IP addresses.
While the downsides of screen scraping remain, whitelisted IPs does eliminate some risk but ensuring only trusted sources can access data and preventing access from unknown scraping sources.
3. Banking APIs
Banking application programming interfaces (APIs) are the next evolution in enabling reliable connections for consumers to link their accounts from third parties. While banking APIs still rely on consumers to input their username and password to create the connection, data sharing is enabled via an API versus screen scraping.
This creates a more reliable connection because an API doesn’t rely on the other institution’s website structure. Connections no longer break any time the other institution makes a change to its login procedures or updates its system. However, connections will still need to be re-established any time a consumer changes their username or password. And, the risk of sharing credentials with a third party remains.
4. OAuth APIs
OAuth APIs, sometimes referred to as an open banking or open finance API, allow consumers to access their transaction data without the need to share usernames and passwords. Instead of asking a consumer to input their username and password, the consumer is redirected to the other institution to log in directly to its system. Then, a token is created and passed back to the third party to establish a connection and enable data access.
This creates the most secure experience for consumers and institutions because it eliminates any credential sharing with third parties. In addition, it clears a more reliable connection as consumers will not need to re-authenticate every time they change their password or when system changes occur.
Finally, OAuth API connections also help financial institutions get ahead of upcoming compliance regulations related to the final rule from the Consumer Financial Protection Bureau (CFPB) under Section 1033 of the Dodd-Frank Act. Currently, the CFPB’s proposed rule would “prevent data providers from relying on screen scraping to comply with the proposal because it is not a viable long-term method of access.” Instead, the CFPB will require data providers to establish and maintain a developer interface that makes data available in a machine-readable, standardized format and doesn’t allow a third party to access the system using consumer credentials.
The downside to OAuth APIs? Standing up an open finance API can be an expensive and time consuming process. For example, the CFPB estimates a “total upfront cost of $250,000 to $500,000 for small depository data providers that choose to build their developer interface in-house” — with “ongoing annual technology costs of $20,000, as well as ongoing staffing costs of $45,000 to $91,000.”
Choosing to build or buy a solution will be a key decision point for financial institutions who don’t yet have an open finance API. MX’s Data Access platform can enable institutions to deliver a safe and secure connectivity experience for their customers — and helps financial providers get ready for potential requirements under Section 1033 rulemaking.
How MX’s Data Access Solution Powers Open Finance
At MX, our solutions and products are built with consumer-permissioned data sharing at the forefront. And, we make it easy for financial institutions of all sizes to accelerate open finance adoption and enhance the money experience for consumers through our Data Access product.
Data Access enables financial institutions to more easily create or evolve their open finance APIs to ensure they meet FDX standards, deliver the required data elements, and follow authentication protocols, such as OAuth and OIDC. In addition, Data Access is interoperable across all intermediaries, enabling financial providers to accelerate their path to eliminate screen scraping from their environment.
Data Access also creates better visibility into the open finance journey by providing real-time performance metrics, insights into data sharing activity, and support tools to easily manage and maintain connections. For instance, Data Access’s API Overview and Test Users feature takes the guesswork out of understanding what data needs to be included in open finance APIs. Financial providers can access — per use case and account type — which data fields are required and under what conditions. And with our Test Users feature, data providers and data recipients can test the APIs before they go live to ensure that all required data is there.
For consumers, Data Access’s Consent Management Dashboard can be easily embedded into mobile and online banking portals so that consumers can see and manage where they have shared their financial data with a third party. Consumers can view when their data was last updated or revoke data sharing access with a third party.
Want to learn more about how Data Access helps financial providers get ready for regulatory obligations? Read our whitepaper.
Setting the Standard — FDX
In June 2024, the CFPB took the next step toward recognizing industry standards-setting bodies as part of its Section 1033 rulemaking to establish consumer financial data rights in the United States. The CFPB’s rule identifies the attributes that standard setting bodies must demonstrate in order to be recognized, as well as a step-by-step guide for how standard setters can apply for recognition.
Recognizing industry standards is crucial to moving the industry forward with Open Finance, and literally setting the standard for secure consumer-permissioned data sharing. Across the industry, the Financial Data Exchange (FDX) has already driven strong adoption of open finance with 76 million consumer accounts transitioned from sharing data via screen scraping to the FDX API as of April 2024.
FDX is a non-profit, industry standards body dedicated to unifying the financial services ecosystem around common, interoperable, and royalty-free technical standards for user-permissioned financial data sharing. Any company within the financial industry can contribute to the development, growth, and adoption of the FDX API and other objectives. MX continues to be a driving force at FDX by chairing and collaborating in key task forces and representing fintechs on the FDX Board of Directors.
It’s great to see the CFPB listening to industry feedback and moving forward on SSOs in advance of the final Section 1033 rule. This will help ensure little disruption to the data sharing environment and avoid delays in the industry’s ability to implement this rule. We’re excited to continue working with organizations like FDX on accelerating a truly open financial ecosystem.