Open Banking in the US has endured a more patient process for widespread adoption across its traditional banking sector, but with the backing of transparent regulatory frameworks, it is now beginning to realise its potential.
John Lewis, CEO of Yavrio, has felt this first hand after utilising its Open Banking technology to connect its corporate accounts to all five of the US’ largest banks and has continued to push adoption of Open Banking in the country further.
Speaking to Payment Expert, Lewis outlines what regulations are shaping the US Open Banking landscape and why consumers are driving this adoption through a demand of more personalised and faster payments.
Payment Expert: With Yavrio connected with all Big Five US banks, is it fair to say that Open Banking adoption in the US is riding a peak wave of momentum and if so, what do you attribute this to?
John Lewis: US banks are definitely seeing marked improvement in their Open Banking provision, and there is good movement in the consumer space. Personally, I see three key factors. The UK and EU leadership on Open Banking shifted ‘best practice’ for banks internationally, and we can see that change happening in Australia and New Zealand, as well as in Colombia, Brazil and Mexico.
Secondly, there was an executive order issued in 2021 which kickstarted the CFPB’s push, and some bank developments are showing determination to get ahead of these requirements.
But perhaps the biggest driver is happening when people see that neobanks and fintechs like Revolut, Monzo or Venmo can seamlessly integrate into their phones. This great cross-platform UX in financial services helps users to know they can demand more from legacy banks.
PE: For those outside of the US, could you briefly break down the regulations behind Open Banking’s growth in the US when it pertains to Personal Financial Data Rights and the Dodd-Frank Act?
JL: The first thing to note is that Open Banking moves best when backed by robust regulation, as without a governing framework, you’re unlikely to get thousands of different banks acting in unison.
The story is that in 2010, in the wake of the Great Financial Crisis, the Dodd-Frank Act was passed to bring much-needed reform to US financial services. This act runs to hundreds of pages with hundreds of points that I don’t pretend to have read cover to cover. However, one small section is interesting. This section, 1033, stated that a consumer should be able to demand information from their bank related to any series of transactions.
Fast-forward to 2021, and the Biden administration issued an executive order which put pressure on a body called the CFPB to “facilitate the portability of consumer financial transaction data”. This is the first key aspect of Open Banking as we know it. The administration suggested that this was to be done using Section 1033 of the Dodd-Frank Act.
The CFPB has published a timeline, stating that between 2026 to 2030, Open Banking should come into play. In practice, however, banks are moving faster than that.
Any sensible banking system should provide consumers with transparency, but ultimately, it does take lines of legal text to enforce this, and this was the route used.
The executive order was passed by a previous President, so there’s some political sensibility in what I might diplomatically call “today’s more mercurial executive climate”, and some banks are challenging it in the courts because they don’t want their clients to have visibility, transparency or control over their data. But the general trend is inexorable.
PE: Could you provide some use cases of how embedded payments have accelerated banks and businesses in the US being able to perform cross-border transactions?
JL: From our perspective, everything we do is embedded. We have partnered exclusively with Xe.com for cross-border settlement as their rails with Dandelion are hard to beat.
This means we are now onboarding clients who historically have just been accepting their local bank’s FX rates without question. However, with us, they can see our live alternative and make significant savings when settling into a foreign currency. This is alongside robust targeting for accounts in different geographies.
In practice, this is reducing friction in international trade. Over time, this will help to shift behaviour, such as being more likely to select a foreign supplier if the cost of doing business is relatively reduced.
PE: Despite the new momentum found in Open Banking adoption, how can US businesses securely transfer out of traditional legacy systems to systems like ERP?
JL: Some ERP systems themselves will be considered ‘legacy’ as they’ve been around for some decades, but the real question is how do businesses get access to the financial technology that enables them to run more efficiently, and capital-efficiently? That’s our core mission – to serve those CFOs by bringing seamless data access and frictionless payment infrastructure directly to them.
What people have come to realise is that these automated and API-led approaches are far more secure than having individuals manually key in transactions between systems. These legacy file-based and manual approaches are not meaningfully secure.
PE: How receptive have US banks/businesses been to FedNow nearly two years since its launch and has it grown appetite amongst businesses and consumers for more instant payment rails?
JL: We’re coming across very few organizations that are already using FedNow. Generally, in the US, we’re seeing ACH as the dominant rail when we first engage with a client. That said, some companies are making very large payments that are financed with an interest rate and still using a two-or three-day settlement time, so any instant or real-time settlement has the potential to save up to millions annually, depending on company size.
The ability for banks to pick and choose which standards to adhere to (FedNow, RTP, etc.) is a different approach in the US to what we typically see in Europe.
Problematically – and this is not just a US issue – these instant rails tend to have lower caps globally than slower ones, which means that, depending on the authentication requirements, businesses wanting to send large values in real-time payments may still have to take a number of actions.
PE: As a UK-based company, how far off is the US in being able to challenge the UK for its Open Banking leadership title, and how do the two countries’ approaches draw similarities but also different fees?
JL: For Open Banking to be successful, it requires a shared vision and a robust, maturing and evolving framework that enables challenger fintechs to connect and transact with established banks.
You need clarity on the baselines to expect, things like transaction data, payment initiation and so on. Then you also need institutions that can define a pathway for new and emergent technologies in a rapidly evolving space. These are pieces like confirmation of payees to better secure payments against a backdrop of increasing security threats.
Compared to the UK, the more fragmented US landscape, with its many thousands of institutions and differing tech approaches, will just naturally be harder to bring together. Enabling businesses and individuals to switch banks more easily will maybe inject the competitive edge needed, as users choose banks that give them better access to the technology. We’re seeing this trend already emerging, with some of our customers now asking us which bank they should switch to for better service.
I’ve got high hopes for the US to move fast over the next five years. People are beginning to demand better things from their banks, and that means Open Banking.
