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How open banking helps promote broader financial inclusion

In today’s ever-evolving digital landscape, the financial industry has been met with changing practices and expectations, and now they’re facing the challenge to both improve data access methods and expand financial literacy and inclusion among consumers. We spoke with Ryan Christiansen, SVP of Data Access for Finicity, to gain a better sense of the current market trends around financial data access methods and Finicity’s growing role in open banking and driving financial inclusion.

FL: Can you explain the type of data connections (API, structured and screen scraping) and talk about where the industry is going?

RC: There are currently three data collection methods in the market – web (or screen) scraping, structured and API . Screen and structured scraping has long been the technology for permissioned data sharing. This method utilizes credential-based access and has served consumers well to date. However, it requires several data intelligence processes to ensure the quality of the data and the identification of the right data elements. That said, for some data aggregation platforms, like Finicity’s, we can access structured data sources that provide a much better result. Finally, the use of credentials for this access is an area the industry is looking to move away from as much as possible.

API connections, on the other hand, enable data collection from specific data files. It ensures the data quality and the data elements required for a particular use case. Additionally, this is paired with tokenized access (oAuth), which eliminates the use of credential-based access.

Very early, Finicity identified tokenized access and the use of an API as the ideal model. We quickly took a leadership role in establishing direct access agreements with financial institutions. It appears we’ve announced more agreements than other players and currently have more of our network traffic using these connections. Our goal is to maintain that leadership and move 80% of our traffic to tokenized API connections. This is the direction the industry is moving in and a way to drive a more consumer-centric approach to the financial data experience.

FL: Why will data access agreements with core banking solution providers like Jack Henry, Fiserv, FIS, etc., be so important in eliminating screen scraping?

RC: For the industry overall, these kinds of agreements improve security by reducing the use of client credentials to access financial data, as well as strengthen data accuracy and connection reliability.

For Finicity, personally, the open industry-standard API integration with core banking solution providers would help connect thousands of small-to-mid sized financial institutions to our open banking platform, allowing their clients to permission access to their financial data securely and receive the benefits that data driven insights can provide.

FL: What is Finicity’s involvement with the Financial Data Exchange (FDX), particularly in helping to create industry standards?

RC: Finicity was an integral part of the FDX launch in 2018, to create a universal standard for data sharing and promote its proper implementation — essentially the criteria of open banking. Finicity maintains its position as a Sustaining Member of FDX (the top-tier group of member companies among its peers) and our CEO Steve Smith actively serves as co-chair of the FDX board. Through these initiatives and leadership opportunities, we focus on expanding open banking operatives, with the goal of propelling financial inclusion. Additionally, the implementation of standards has fueled further innovation in other technologies and we fully anticipate the same here.

FL: How is Finicity focused on financial inclusion and why?

RC: Both Finicity, and our now parent company Mastercard, are focused heavily on financial inclusion as we believe the more consumers gain control over their financial health, the more people there are participating in the financial market, and the more increased vitality it brings to the economy.

For this reason, in 2020, Finicity conducted a survey to examine the pandemic’s impact on financial health and wellness. Overall, inclusion in financial and credit processes emerged as one of the most critical needs when examining data specifically pertaining to the most financially vulnerable — those with an annual household income of less than $50k. More than half (51%) of these consumers said they know what financial information lenders are using to determine their creditworthiness, compared to:

  • 61% of those with a household income between $50,000 and $100,000
  • 60% of those with a household income between $100,000 and $175,000
  • 68% of those with a household income over $175,000

Seeing these discrepancies, we feel there’s room for the emerging open banking model to lessen this gap and provide greater opportunities for the most financially vulnerable. This is a model we are focused on evolving.

FL: How does open banking help promote broader financial inclusion?

RC: By putting consumers at the center of the financial experience, open banking can promote better financial literacy and financial inclusion. The model is designed to ensure transparency, control and security in the financial data sharing experience, empowering consumers and businesses to make better financial decisions, improve their creditworthiness and potentially gain access to credit at lower interest rates. This, in turn, helps build a better understanding of the financial landscape, allows for more individuals to participate in the market and improves overall economic recovery.

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