Read on Twitter
1/ #OpenBanking has been jumping from continent to continent for the last decade with various levels of success. But it’s on the brink of breakthrough in the US and elsewhere for technological and regulatory reasons. This THREAD attempts to show how and why.
2/ Open banking means open (and secure) access to bank APIs for customers to view account data, make transfers or do other things via applications, which usually were done by the banks themselves. This is a good primer from @NicoBenady https://twitter.com/NicoBenady/status/1357618761587638273
3/ Banks unsurprisingly only see risks from open banking -- and therefore resist it usually. It means consumers can easily go beyond banks’ walled gardens to do all sorts of things -- including to move accounts (a thing that many neobanks capitalize on). https://www.americanbanker.com/opinion/a-cautionary-tale-of-open-banking
4/ But open banking is generating a massive amount of value. You’ve likely heard of Plaid, that company that Visa TRIED to buy for $5 billion. It's the lynchpin of open banking in the US, and its revenue and valuation prove it is critical infrastructure. https://www.cnbc.com/2021/01/12/visa-abandons-takeover-of-plaid-after-doj-raises-antitrust-concerns.html#:~:text=About%20a%20year%20ago%2C%20on,connect%20to%20users%27%20bank%20accounts.
5/ That Plaid pulled out of the deal is telling -- they (both mgmt and investors) believe they are worth far more than $5b, and they’re likely right. The potential value to consumers--enabling the possibility that tech replaces banks wholesale--is huge. https://twitter.com/arampell/status/1349103736161923072
6/ In particular, open banking is stepping into the limelight to fix problems beyond banking -- including everyone's least favorite institutions: credit bureaus. Multiple corners of society are looking for replacements (incl the Biden admin) for bureaus. https://finance.yahoo.com/news/biden-wants-shut-down-credit-195528426.html
7/ Open banking offers alternatives to understanding creditworthiness. Consumers can enable verification of their income, assets, and spending patterns to lenders, in exchange for better credit terms and availability. And regulators are encouraging it. https://www.consumerfinance.gov/about-us/newsroom/federal-regulators-issue-joint-statement-use-alternative-data-credit-underwriting/
8/ As we at @petal + @FDATAglobal and @Plaid have advocated, it’s key that existing legal protections are enforced to permit open banking to flourish. Dodd Frank 1033 guarantees access to data, and rules should force banks to make this a reality. https://twitter.com/jasonbgross/status/1357423066012385284
9/ Across products, the US can draw inspiration globally re Open Banking. Europe has sophisticated regimes (PSD2, etc.), and companies in Latin America including @joinbelvo in Brazil & @fineriomx in Mexico are laying the foundation for open banking’s future in those markets.
10/ Open banking will also likely create new business models. There are growing businesses in digesting these datasets and making them useful -- models that have proven to work in Europe ( @nordigen). We can expect similar dynamics in the US soon as well.
11/ Very excited to see this category develop in the coming years. Thank you to everyone who contributed, and lots of fascinating folks writing/building in the field! @AlexH_Johnson @GavinLittlejohn @NikMilanovic @RolandsMesters @EdrizioCruz @InigoRumayor @mikulaja @rexsalisbury
