A move by Jack Henry & Assoc., a large provider of back-end services banks rely on, will bring a new type of software to millions of banking customers that promises to increase security.

From peer-to-peer payment apps and lending platforms to financial planning tools and tax preparation software, consumers must often provide their bank log-in information to third parties to use these products and services.  

With the pandemic helping to change consumers’ preferences for digital transactions and services across industries, the convenience and popularity of these types of apps could continue to grow, leading to more banks sharing user credentials with third parties and increases in security risks. 

A framework known as “open banking” or open application programming interfaces (APIs) – giving third-party providers tailored access to bank information – could eliminate this practice, creating a more secure and transparent environment for consumers. And it took a major step closer to becoming the standard for many community banks last month. 

As banks respond to customers’ growing expectations and interact with more technology vendors, this open framework could also give them more flexibility while saving costs. 

“We’re going to keep moving in that digital direction,” said Kevin Miologos, managing principal at consulting and technology firm Capco. “Get on the bandwagon, because this era of closed platforms is not going to last very long.” 

A Network Solution 

APIs provide a means for connecting computers or software applications with one another. 

Most consumers don’t yet know about the role open APIs are beginning to play in banking. GoCardless, a financial technology company that recently added an open-banking feature to its digital payments platform, recently surveyed 1,000 U.S. consumers and found that 52 percent did not know about open banking, according to a statement from GoCardless. Of those who had heard about open banking, 37 percent said while they knew it would benefit them, they did know what it was, likening it to 5G technology for cellular networks. 

Open APIs give third parties, like fintech firms, open access to banking systems, providing a framework that is more secure than screen scraping, the common method third parties using to access bank accounts, said Stuart Rubinstein, CEO of Akoya. 

Based in Boston, Akoya was spun off by the parent company of Fidelity Investments in February 2020 to build an open API network that will connect financial institutions with fintechs and other third parties. It is co-owned by Fidelity and 11 North American banks, including Bank of America, KeyBank, JPMorgan Chase and PNC. 

With screen scraping, third parties such as payment apps or financial planning software access information needed for their service, Rubinstein said, but get access to all accounts and data with the bank, more information than what most consumers intend to share. 

And that app often retains the log-in information, Rubinstein said, even after users delete it from their smart phone.  

Open APIs change that process, giving fintechs and other providers access only to the information that the consumer intended to share. 

While owned by a dozen financial institutions, Akoya was spun off with the intention of building a network the entire financial industry could use.  

“The network problem needs a network answer,” Rubinstein said. 

Jack Henry Takes Big Step 

Rather than fintechs and other companies having to work separately to connect with each bank’s system, the Akoya network will give all members access to the same open APIs, which are based on an accepted standard supported by the nonprofit organization Financial Data Exchange. 

Akoya took a big step in getting the information needed for its network last month: signing up a core banking technology provider. Jack Henry & Assoc.’s Banno Digital Platform, which is used by more than 400 banks and credit unions, brings 4.8 million customers into the network. Akoya is talking with other core providers, Rubinstein said, as well as credit card companies, brokerage firms and other financial institutions. 

The company expects to have about half of U.S. deposit and credit card accounts in its network by the end of this year. Rubinstein said that number will continue to grow in 2022, which is when Akoya will start working more with fintechs and other companies so that they can start using the open APIs in their products and services.  

Akoya itself is not collecting data, Rubinstein said, but acting more as a utility company which data will pass through. It will also provide a dashboard for consumers, through their bank accounts, so they can see which third parties have current access. 

“At the end of the day, we are about consumer control,” Rubinstein said. “It’s about empowering consumers who like to grant access to their data, empowering them to do that in a safe, secure and transparent way.” 

Diane McLaughlin

Cost Savings Possible 

Banks can also benefit from working with an open API framework, said Miologos with Capco, the consulting firm that also does digital development work for financial institutions. 

Using open APIs helps banks integrate the different parts of their front-end systems, which are often a collection of different products from different vendors, Miologos said. He added that by not having to build their own systems or customizing fintech products, banks can save the overhead costs associated with integrating, maintaining and fixing bugs in the systems, both for customer-facing and internal technology. 

“[Smaller banks] want to spend money on what gives them a return, and what gives them a return is the customer experience – not integrating the backend of applications,” Miologos said. “If you make that as easy and economical and seamless as possible, then you can focus on what matters, and that’s what [an open API framework] is going to enable.”