Independent Banker - October 2021 - 56

banking] with banking-as-a-service. "
In short, there is no precise
4 OPEN BANKING TERMS TO KNOW
defi nition-yet (see " 4 open banking
terms to know, " right).
MOUNTING PRESSURES
This confusion may have led to slower
adoption and awareness of open
banking in the U.S. In fact, a 2021
Jack Henry survey of community
fi nancial institution CEOs showed
that half of the executives didn't
have open banking on their radars,
and another 19% reported they were
simply not interested in learning
about it. Yet, that survey also found
that many community bankers have
begun to dive deeper on this topic.
Of those already in the research and
planning stage, 87% plan to execute
an open banking strategy by 2023.
That momentum may be increasing
just in time to meet growing customer
demands. According to a report from
London-based Finastra, 97% of global
fi nancial institutions that have already
integrated open banking into their
operations say it has benefi ted their
business lines by improving customer
experience, customer acquisition and
retention, or new product rollouts.
" Open banking is already here, and
the expectation of the end consumer
is to consume more capabilities, " says
Shuki Licht, chief innovation offi cer
at Finastra. " Ninety-fi ve percent of
the innovation happens outside of
the bank. If the bank wants to have
analytics capability, AI [artifi cial
intelligence] capability, personal
fi nancial management capability and
hundreds of diff erent capabilities,
it must open its cores using open
banking and let fi ntechs collaborate. "
THE ROOTS OF OPEN BANKING
This concept of openness harks
back to early developments in the
tech industry, namely the onset
of computers, according to Potts.
When computer technology fi rst
entered the market, large mainframe
systems were housed in temperaturecontrolled
rooms with strict protocols
While diff ering definitions circulate within the industry, at
a high level, the following sums up key activities that fall
under the umbrella of open banking.
1. Open banking
While this term originated in the European Union's
Payment Services Directive (PSD2), in the U.S., open
banking refers to a movement that embraces the ideas
of open source, open data and transparency, creating an
environment where the customer has greater access and
line of sight to their data and how it is used.
2. Open application programming interfaces (APIs)
APIs allow the sharing of data between systems, and
in an open environment, there is a publicly available
interface that enables access to data or functionality.
This environment creates the potential for community
banks to share customer data (with permission) with
third parties and vice versa for the development of new
customer solutions. It also is the technology behind BaaS
and embedded fintech.
3. Banking-as-a-Service (BaaS)
This solution off ers nonbank providers access to
bank functionality through APIs. It creates a way for a
community bank to provide banking solutions to thirdparty
providers who in turn, create a unique experience
for customers, with the bank's infrastructure providing
financial services support.
4. Embedded fintech
Cornerstone Advisors, a Scottsdale, Ariz.-based advisory
firm, defines this as, " The integration of fintech products
and services into financial institutions' product sets,
websites, mobile applications, and business processes. "
Simply speaking, this term speaks to a community bank
applying a fintech partnership strategy to the development
and implementation of its products and services.
for who could access them-just as
core systems have been gated for
community banks over the years.
Then, once the technology caught
up in the market and brought with
it greater access opportunities, new
middleware solutions launched
to expand its reach to the end
56 Q ICBA Independent Banker Q October 2021
consumer. Today, community banks
are experiencing the open banking
version of this middleware technology
evolution through open application
programming interfaces (APIs).
" Fundamentally, these are evolutions
of tools that have been around in some
form or fashion since the beginning of
Independent Banker - October 2021

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