All eyes are on the financial technology sector this year, as venture capital-backed fintech startups are poised to exceed last year’s funding by 36 percent. Robo advisors, mobile payments, personal finance managers and online lenders, to name a few, are all making waves in the futures of the consumers that use them and the financial institutions that don’t know whether to fear or embrace them.
Let’s look at mobile payments specifically. PayPal-owned P2P payment app Venmo reported transferring more than $1 billion in January 2016 alone. More than 21 percent of transactions at company-owned U.S. Starbucks stores now come through the mobile app. And consumers have been quick to adopt mobile wallets such as Android Pay, Apple Pay and Samsung Pay.
With continued innovation and capital flowing into fintech, a new wave of financial apps will quickly be upon us. So, what is powering this new frontier?
APIs and User-Permissioned Data
We are in the midst of a defining moment for innovation in financial services. User-permissioned access to transaction data via core aggregators and standards-based bank APIs are driving the next wave of the fintech revolution, providing innovative developers with the data necessary to disrupt incumbent financial apps and solutions. User-permissioned access to bank data and the ability of financial apps to analyze said data will transform the financial services industry.
We’re seeing tools developed to analyze user-permissioned transaction data, such as YNAB or Level Money, take off among consumers who willingly connect their bank account to these applications. Banks who have embraced financial data aggregators, who provide integration services for these applications, are also benefitting by attracting customers who value a financial institution’s ability to work together with the applications they use to help manage their day-to-day financial lives.
APIs, which allow financial applications and banks to essentially plug into each other for a seamless transfer of data, are important for the modernization of financial services. The democratization of bank data will make it easier for app developers to innovate and create financial technologies that benefit both consumers and their financial institutions.
Improving Data Access Security and Reliability
Implementation of modern API standards like OFX 2.2 and the
FS-ISAC Durable Data API (DDA) can help banks democratize their customers’ anonymized transactional and financial data, unlocking a new wave of financial applications.
OFX (Open Financial Exchange) version 2.2 is a new update of the open standard that improves the security of user-permissioned financial data exchange between banks and apps through the use of authentication tokens instead of usernames and passwords. Over 7,000 financial institutions have existing OFX server investments, making OFX 2.2 an easy first step for banks seeking to modernize their customer data strategy. DDA (Durable Data API) was released by the FS-ISAC Aggregator Working Group in October 2015 and is a RESTful API standard that is a modern alternative to OFX 2.2.
Banks that adopt modern data API standards such as OFX 2.2 or DDA, and partner deeply with leading aggregators, will position themselves as next generation leaders in banking.
Adopting a Global Standard
The best way to create the ideal environment for modernizing financial services, and continuing to improve upon fintech applications, is for financial institutions, new entrants and policy makers to work together to create a new global standard.
Finicity has already begun to lead the charge in moving the industry toward a global standard that will democratize user account data. Finicity is currently working with leading banks, financial app developers and leading aggregators to promote the adoption of standards such as OFX 2.2 and DDA and is evangelizing a move to real-time data exchange through TxPUSH.
Once a global standard is adopted, connecting banks and their user-permissioned transactional data to financial app developers will be a seamless, secure process. Leading data aggregators will continue to work together to move the industry forward and develop APIs that enrich the financial lives of consumers while encouraging the democratization of data by major financial institutions.