72% of consumers would switch their bank if it didn’t support their preferred fintech app

As consumers continue to seek out more personalized financial services and tools, incumbents are looking for more ways to keep up with these new demands.

One method has been to adopt open banking as a way to connect with third-party providers and offer more new services that could appeal to users at a faster pace. 

Open banking is no stranger to the world. Japan, Australia and the UK are all examples of countries that have been doing mega regulatory renovations around open banking. In the US, however, it’s taken a while for this technology to take off.

At this year’s Tearsheet DataDay conference, vp of product at MX, Crystal Anderson, spoke about where we’re at with open banking in the US, why it’s important, and what’s next in the grand scheme of things. 

The main key to the recent rise of open banking in the US in the past year or so, says Anderson, has to do with regulators’ newfound interest surrounding the tech. First there was the Executive Order which called for the CFPB to get a move on with rulemaking for open banking. Then in December the CFPB noted that open banking was one of its top priorities.

“I think that's really what's prompting financial institutions to weigh in and really embrace open banking,” said Anderson. 

But that’s not the only factor that’s led to this change of heart. Fintechs have been taking up more space in consumers’ day-to-day finances. And these app embracers have been starting to ask – ‘why can’t my bank do that?’

“They've really exposed the limitations of our legacy systems,” said Anderson.

On top of exposing limitations, alternative financial solutions have also been garnering more trust from their customers. And users are subsequently showing more willingness to let go of their incumbent providers if they aren’t able to connect with their alternative providers. 

“We did a survey that showed us that 72% of consumers would switch their primary financial relationship if their preferred fintech app didn't work with their provider,” said Anderson. 

To combat this, says Anderson, banks need to offer a way for consumers to easily connect their data from their incumbent financial institution to their fintech apps. 

“The problem really isn't limited to smaller banks and credit unions, even top 10 financial institutions who have invested in open APIs still average 41% failure rates for consumers who link their account to a third party. And if that connection isn't working, the chances are that the consumers are looking for other options in the market.”

In terms of the financial industry shifting completely towards open banking, there may still be a ways to go. Some of the things Anderson points out which need some work include transitioning completely from older ways of gathering data – for example, going from screen scraping and credential-based data to more secure APIs.

Then there’s also the case of how a lot of incumbent banks view fintechs. Opening up your data for third-party use means opening yourself up to competition. Ironically, though, this may be the only option for keeping you in the competition.  

“Financial institutions [need to act] in the best interest of their consumer, even if it means increased competition in the market,” said Anderson.