Open banking holds significant promise for changing the financial system for the better. With the ability to access and share their own financial information, individuals gain greater control over their data while enabling more efficient and tailored financial services. For banks, it has the potential to reduce security risks and open up new product ideas in the field of identity verification.

During a recent PaymentsJournal podcast, Caitlin Sinclair, Director of Proposition Development in Financial Crime at GIACT, an LSEG Business and James Wester, Co-head of Payments at Javelin Strategy & Research, provided insights into the state of open banking, the challenges it faces, and the potential for self-sovereign identity to revolutionize data control. They also spoke about how businesses can use open-banking tools more effectively, as well as the new consumer products open banking is likely to enable.

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The State of Open Banking

Although open banking does not have a fixed definition within the industry, in simple terms it allows individuals to access and share their own information held by financial institutions.

In some regions, government and regulatory bodies have played a large role in promoting open banking. The push for U.S. open banking has mainly been driven by industry and commercial interests.

Open banking in the United States involves a few key players. There are the traditional banks that hold the data that open banking enables consumers to share with third parties of their choice, such as fintech companies. There are also third parties such as smart budgeting apps, insurance providers, and neobanks. And let’s not forget the connectivity provider, which facilitates the interaction among the third-party services, the bank account, and the account owner.

“Open banking initially started with banks and international initiatives, like those in the UK, aimed to create a more level playing field and empower individuals to determine what they want to do with their banking data,” Sinclair said. “This has led to the emergence of useful tools such as smart budgeting apps and dynamic fintech apps that help individuals manage their finances more convenient...