What If Regulators Required Exposing Member Data?

Over the next year, European Union member states will be scrambling to implement the revised Payment Services Directive which goes into effect in January 2018. In a nutshell, PSD2 will require all credit unions operating in Europe to expose member account data for retrieval and provide payment services for use by authorized external entities.

These third-party providers will be empowered to retrieve member account information as well as initiate payments directly to credit union systems if their member provides them the authorization to do so. European credit unions are now on the hook to develop and provide programmatic interfaces–application program interfaces or “APIs”–for outside organizations to tap into.

APIs are the pipeline to data, and can be considered a modern day “oil drill” that taps into valuable data and services that can be refined into innovative product offerings. Indeed, APIs already play a major role in the integration between online banking systems and ancillary products.

Many industry experts believe the implications of PSD2 are huge, with some even going as far as calling it “the single biggest change in the banking industry ever.” Advocates say it will result in increased competition, accelerated innovation and ultimately provide members with better financial services.

However, others remain concerned about security ramifications, the cost of creating and maintaining APIs and the loss of key revenue streams due to disintermediation by third-party products. Maybe most importantly, 68 percent of bankers in Europe fear the consequences of losing control of the client interface, according to data from PwC.

For now, financial institutions in the U.S. remain unaffected. However, many entities, including the CFPB, are pushing for credit unions to provide access to members’ data. No matter what side of the fence you may be on in this debate, credit unions will be increasingly asked fundamental questions about future plans to share data and services with outside organizations. Developing superior API strategies may become essential for your institution to remain well positioned for the future.

As gatekeepers of financial data, credit unions have the opportunity to lay the foundation for more intelligent financial services that merge rich data from a wide range of sources to create new service capabilities. In the future, prospective members may judge credit unions based on how well they engage with other digital systems. Credit unions that don’t interact effectively may get left behind.

Eric Wilson is a manager of research & development for JHA Payment Solutions. As a business unit of Monett, Mo.-based Jack Henry & Associates, Inc., JHA Payment Solutions operates as a true payments partner that replaces processing silos with a holistic payments ecosystem that is faster, simpler and secure.