While a handful of U.S. banks are opening their software and data to outside applications, something much bolder is happening in Europe: governments are championing the practice, especially the U.K.
The push for open bank APIs, or application programming interfaces, could transform the way consumers across the Atlantic interact with their banks and increase competition among providers. Switching or opening checking accounts may get easier, for example, since customers could more easily port their transaction history from one institution to another, and comparison services could give them greater insight into the costs of their accounts.
The prospect is both tantalizing and terrifying for banks. On the one hand, traditional products would become more commoditized. But open APIs would allow them to explore new business models, such as running their own app stores.
"The banks have the opportunity to be a marketplace of solutions," said Kristin Moyer, a research vice president at Gartner.
The initiative comes as banks in the U.S. wrangle with account aggregation sites over the practice of screen scraping, considered a less secure way than APIs to share data. The European push for APIs also dovetails with other efforts by the U.K. to become the epicenter of fintech innovation.
The U.K. is continuing its work "toward having more of a leadership role in fintech community," said Moyer. She estimated that top-tier banks in the U.S. are at least three years behind others in Europe in developing APIs. As a result, "in the near term, U.S. banks are at a competitive disadvantage relative to global banks that also play in the U.S. market."
APIs allow one piece of software to talk to another. Open APIs allow third parties to build applications that interact with a bank's data. Importantly, they do so without sharing account credentials, minimizing the exposure of sensitive information.
Screen scraping, on the other hand, requires consumers to entrust their banking logins and passwords to third parties. Despite the risk to customer data from the practice, many recognize there's no going back to a time before Mint.
"Banks, they can't control this Pandora's box," said Alexander Niehenke, a principal at Scale Venture Partners. "Consumers want this."
Screen-scraping is convenient for consumers, but creates a risk for banks, which are required to safeguard consumer data under Title V of the Gramm-Leach-Bliley Act.
"It's a catch-22," said William Nelson, president and chief executive of the Financial Services Information Sharing and Analysis Center, an industry group focused on security threats. "Banks are concerned about the security around it."
The FS-ISAC has published a paper that advocates for a bank API (and a ban on screen scraping). That work has since been passed off to trade associations, including The Clearing House.
In the U.K., HM (Her Majesty's) Treasury commissioned a white paper on bank data sharing in 2014 and assembled an Open Bank Working Group that is getting ready to publish a framework for APIs by yearend. Separately, in October the European Commission issued Payments Services Directive 2, a wide-ranging law that includes XS2A, a rule requiring banks to let apps access their customers' accounts when the customers wish, very likely using APIs, by December 2017.
To be sure, there are good reasons for reluctance to open up via APIs. Beyond the expense, the model not only mandates a new mindset for a risk-adverse industry, but also requires them to open up in a way that could cannibalize their businesses.
"That's really an enormous sea change going," said Moyer. "Culture is really the hardest thing I think to change."
Andy Reiss, a director at the consultancy Fingleton Associates and one of the authors of the open bank report commissioned by the U.K. government, envisions nothing short of a Mint.com-like experience that lets customers choose to share their data with apps that could, say, sweep money out of their checking account and into another institution's savings account with a higher rate, all from a single portal.
"That's the theory," said Reiss. "We will see how it happens."
Just like in the telecom world where the consumer wouldn't care about the suppler of broadband, Reiss says the API model would turn the bank into a hub for transactions where the institution doesn't have a hold on the data for whatever the customer wants. The model could also serve as an opportunity for banks to become a marketplace for apps.
If banks had app stores, Moyer said, they could increase transactions and drive revenue. (Think of it as Apple getting a cut for developers using its platform.)
The Berlin software firm Tesobe's Open Bank Project is among those working with banks toward such a vision.
"There's a lot of appetite" among European banks, said Simon Redfern, chief executive of Tesobe and founder of the Open Bank Project.