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How open banking can benefit credit unions

While all financial institutions (FIs) operate on customer relationships, trust and loyalty can play a larger role for credit unions. According to the PYMNTS Credit Union Innovation Index, 65% of credit union members said they chose a credit union (CU) as their primary because they trusted it, compared to 45% of non-members from CU who said the same thing.

The latest Credit Union Tracker explores recent developments in the world of credit unions, and how open banking could change the way credit unions do business and increase customer loyalty in the process.

In fact, loyalty programs are the most popular feature of members. Almost half (49.1%) cite loyalty and rewards as the area in which they want to see greater innovation over the next three years.

The same study, however, found that loyalty and rewards were only the seventh priority among CUs, which instead focus on open banking options offering anti-money laundering (AML), security for data and instant payment technology.

A majority (62.7%) cited data security and 60.8% indicated that anti-fraud initiatives were the top priorities for innovation.

Open banking benefits

The priorities of members and CUs may seem contradictory at first glance, although 42.4% of members want their CUs to invest more in security and 19.5% want innovations in instant payments. Open banking is a solution that can solve security issues and instant payments.

The advantages of open banking are numerous, the most obvious being the speed of payments between FIs. Open banking is typically achieved through APIs that allow third-party developers to build tools based on specific services and information offered by FIs, ensuring that they are compatible with other banks’ procedures.

And by many metrics, it looks like UCs and members are adhering to open banking.

A to study found that 61 percent of consumers are willing to allow open access to their financial information in exchange for easier banking transactions, while 77 percent of U.S. banks plan to invest in open banking initiatives this year.

Europe is ahead of the US, in large part thanks to the revised Payment Services Directive (PSD2) which requires banks in the European Union (EU) to provide each other with access to transaction data and account information. Around 75% of FIs in Europe see open banking as the heart of their digital transformation.

Security concerns

As mentioned above, a significant number of members want CUs to invest more in security. And security concerns are not unfounded when it comes to open banking.

Technically, disclosing user data to third parties currently violates agreements between banks and customers, but open banking could change that or even transform security practices and create stricter standards.

Jack Lynch, chief risk officer at PSCU, told PYMNTS how credit unions can balance the need for fraud protection without unduly hindering their members. Education is part of the equation. “The more members know about the changes in security and expectations for their day-to-day account activities and how their credit union works to protect their information, the more transparent the experience will be for both parties,” a- he declared.

Like many FIs, credit unions are also exploring biometrics and other new authentication and artificial intelligence (AI) technologies. CCCU recently implemented a security system that uses AI and pattern recognition to review and identify fraudulent transactions. Suspicious activity is reported to human analysts for review.

“What is this system [does] is basically tapping into our operational data store, which is a copy of our kernel that will allow us to detect, in near real time, different anomalies with a transaction model, ”said Moran of CCCU.

Beyond the never-ending battle against fraud, AI can, and is already helping, transform the way people interact with their credit unions – from using voice assistants for customer service to chatbots for commitment.

AI-powered chatbots can create revenue-saving potential for credit unions. These automated services are on track to save an estimated $ 8 billion per year by 2022, in some estimates.

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