Open banking is nothing new for banks in the UK and Europe, but the concept is now coming to the US market and is set to proliferate in 2025. While there is regulatory approval to move ahead, there are some obstacles ahead that will need addressing.
The Consumer Financial Protection Bureau (CFPB) finalised the Personal Financial Data Rights Rule, also known as “open banking”, in October 2024. This regulation mandates that financial institutions make consumer financial data accessible through secure, standardised APIs, provided with explicit consumer consent, thereby offering consumers greater control over their financial data.
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While promising in its aims to foster transparency and competition, open banking presents formidable challenges for financial services institutions (FSIs), particularly those grappling with legacy systems, data security, and regulatory compliance.
To meet these challenges, US banks must undergo a significant transformation in data management and interoperability. By adopting modern data unification techniques, FSIs can transform these challenges into opportunities, ensuring compliance while positioning themselves as leaders in an increasingly data-driven financial ecosystem.
The open banking mandate and core requirements
The CFPB’s rule sets out six strict requirements for data access, security, and compliance oversight in how US banks and financial service providers apply open banking.
Data Accessibility
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By GlobalDataUS banks must provide customers’ access to their financial data and enable third-party access upon consumer authorisation. This includes data such as account balances, transactions, and payment history.
Secure APIs
Financial institutions must adopt standardised, secure APIs for data sharing, moving away from less secure methods like screen scraping.
Explicit Consent Management
Banks are required to establish robust consent management systems, ensuring consumers understand and authorise third-party access to their data.
Privacy and Security Measures
Ensuring that data is only shared for authorised purposes and managed securely is paramount.
Third-Party Compliance Monitoring
Institutions are held accountable for third-party providers’ adherence to regulatory standards.
Regulatory Audit Preparedness
Detailed records and documentation are necessary to demonstrate compliance.
US banks-majority unprepared for open banking
For US financial service providers, these requirements entail adopting advanced data practices, regulatory frameworks, and infrastructure capable of supporting real-time, secure data sharing. However, past reports like the Sopra Steria report on digital banking trends suggest 75% of banks report that they are unprepared for the demands of open banking.
Challenges for financial institutions
The push for open banking in the US comes with considerable obstacles, particularly in the areas of technology and compliance. Many US financial institutions continue to rely on legacy systems that are not designed to support real-time data sharing or the seamless integration of APIs essential for open banking. Transforming these outdated infrastructures to meet open banking’s requirements demands a substantial investment in modernisation and technical reengineering.
Adding to this complexity is the US adoption of API standards from the Financial Data Exchange (FDX), a move aimed at ensuring data interoperability across financial systems. However, aligning existing systems with FDX standards involves extensive work in developing APIs and restructuring data, challenging institutions to adapt quickly and cohesively.
Data security and privacy represent additional critical concerns, as banks must rigorously protect consumer data both in transit and at rest.
With the heightened regulatory focus on secure data exchanges, banks are responsible for ensuring that all shared information with third parties complies with stringent security standards, requiring meticulous oversight of data usage and access controls. Furthermore, open banking’s regulatory compliance demands are formidable, necessitating comprehensive audit trails and systems with fine-grained data traceability. Legacy systems, often lacking these capabilities, face significant difficulties in meeting these complex regulatory requirements.
Modern data management: An essential tool for open banking
Effective data management and unification strategies can help US banks overcome these challenges, allowing them to build the required infrastructure, ensure regulatory compliance, and securely manage customer data. This approach centres on creating a unified data platform capable of supporting open banking functionality while maintaining flexibility for future regulatory developments.
The key elements of this start with a platform that enables a holistic view of each customer, integrating data from multiple systems and applications into a unified, real-time view. By leveraging such platforms, banks can provide more tailored services, improving the customer experience while ensuring data is securely managed and consented to.
For FSIs, consent management is a cornerstone of regulatory compliance and crucial to how they will enable open banking. Advanced consent management systems allow banks to capture, manage, and audit consumer consent dynamically, ensuring that data sharing activities comply with regulatory standards in real time.
As US banks roll out open banking, they will be under the microscope from the CFPB. This means they will need data governance frameworks equipped with access controls, data provenance, and audit trails to assure regulatory compliance. By embedding governance into their data management systems, banks can securely handle open banking related data exchanges with third parties while maintaining full traceability, reducing the risk of regulatory penalties.
And finally, there is how the banks create and manage those APIs that are so crucial to the underlying Interoperability that enables open banking. Developing APIs aligned with FDX standards is essential for compliance. A modern data platform can simplify this by providing a centralised point of data access, enabling standardised and secure API integrations that facilitate compliance with open banking requirements without extensive reengineering of legacy systems.
The competitive advantage of embracing open banking
While open banking may seem like an added regulatory burden for US banks, it offers competitive advantages for those institutions that embrace it. By adopting robust data unification and management solutions, financial service providers can gain a first-mover advantage, positioning themselves as leaders in a market where consumer trust and data privacy are paramount. Banks that can offer seamless, secure access to financial data are likely to attract a new wave of digitally-savvy consumers, ultimately driving loyalty and growth.
Furthermore, open banking aligns with a broader trend toward consumer empowerment. With consumers increasingly expecting greater transparency and control over their financial data, banks that meet these expectations stand to benefit from increased customer satisfaction and brand loyalty.
As the US embarks on its open banking journey, financial institutions face significant challenges and transformative opportunities. Modern data management practices, coupled with effective unification strategies, offer a pathway for banks to not only comply with the stringent requirements of open banking but also to lead in an evolving financial landscape. By embracing these technologies, US banks can ensure data security, meet regulatory demands, and foster consumer trust—ultimately reaping the competitive advantages that open banking promises and already delivers elsewhere in the world.
Karthik Narayan is Product Management Director at Reltio
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