We are moving toward an open financial web. But the most notable barrier to this transformation has been easy and automated access to account-owner-permissioned financial data.
There is no singular standard to share financial data with services like Mint, OnDeck Capital or Credit Karma. The financial industry has made attempts to collaborate, but our efforts have failed to produce complete alignment around a single data-access standard — harming consumers' ability to make informed financial decisions based on timely and accurate data. The only way to fuel financial services innovation and address the critical requirements of security and privacy is to collaborate on a global standard.
With more than 7,000 installations globally, OFX is the leading bank standard for financial data access that has stood the test of time. Last year the OFX Consortium released OFX Version 2.2, which uses an OAuth token — a protocol that lets customers access their financial data in a portal of their choosing — rather than relying on traditional login credentials to grab financial data. Many financial institutions are upgrading to the latest version. An alternative standard banks are using is the Durable Data API or DDA (not to be confused with direct deposit account). Financial institutions are adopting this standard because of its modern API format and because it formally introduces OAuth as an authentication standard for data access.
Although these data standards are evolving and industry players are collaborating with each other to improve financial data access for consumers, gaps in data quality and consistency still exist because of the lack of a single data-access standard.
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Furthermore, many digital financial services still rely upon screen scraping to collect financial data. Screen scraping is not only a very antiquated approach for data collection, but it introduces security concerns in addition to lacking sufficient reliability and accuracy.
To solve the gaps, we believe a global standard for connectivity is the future of data access. The Center for Financial Services Innovation, the authority on consumer financial health in the United States, released late last year the Compass Principles to serve as a framework for industrywide consumer-data-sharing collaboration. Data aggregators (including my own company), banks and fintech players pitched in to develop the principles that will ensure the financial digital products and services are secure, inclusive and innovative. We should embrace the industrywide framework and unite on a single data-access standard that will benefit banks and consumers in the following three ways:
- Expanded access to financial services: A single standard for data access across financial institutions is not impractical like some have argued. In fact, a single standard will foster a more inclusive financial services landscape. Standardization will make it easier and more affordable for even small banks to access and use certain technologies and third-party financial applications. Consumers, meanwhile, will experience interoperability regardless of their bank account types. They will also have a wide variety of service capabilities to improve their financial lives.
- Development of mutually beneficial products: A global standard for connectivity — in which banks and consumers experience timely, consistent and complete transfer of data — will drive positive consumer behavior through reliable communication and smart design. These improvements will contribute to healthy competition in conceptualizing new services and in delivering the most mutually beneficial products, while serving as a quality check for the industry. Bluetooth is as an example of a successful industry standard that has inspired an entire suite of new applications that overcome synchronization and connectivity obstacles, for instance.
- Secure data sharing: The growth of the financial apps is fueled by a rise in user-permissioned data sharing, where consumers and businesses give consent for access and use of their data to third-party applications. A global standard for data access will incorporate applicable laws and best practices for data privacy and security. It will protect consumers' personal information when transferred from financial institution to third-party application.
Naturally, there are challenges to mass implementation of these principles. But in the long run, standardization improves innovation and the user experience while reducing complexity and cost.
Nick Thomas is president and co-founder of Finicity.