Open Banking isn’t just a trend discussed in financial circles. It’s resulting in a major shift in policies of how banks, lenders, and third-party providers (TPPS) interact with customer data.
These policy changes were primarily influenced by the European Union’s Revised Payment Services Directive (PSD2), which mandates rigid security requirements to protect consumers’ financial data.
For banks specializing in small business lending, open banking offers both opportunities and challenges. Open banking frameworks open the door to faster, data-driven lending. But, they also come with compliance concerns, technology upgrades, and tighter data controls.
Regulatory agencies such as the Consumer Financial Protection Bureau (CFPB) were moving toward stricter rules for data sharing, security, and consumer control. However, new regulatory frameworks are in motion that could directly impact how small and regional banks operate. These moves have left many financial institutions wondering where current policies stand on open banking.
What is Open Banking?
Open banking provides a secure way to share customer data with authorized third-party providers (with a customer’s permission). This includes access to a wide range of data from customer financial accounts, such as checking, savings, and credit card information.
Application Programming Interfaces (APIs) facilitate these connections in a safe and controlled environment, providing a gateway between a financial service provider’s internal systems and outside providers. These APIs have strong security protocols to ensure financial data protection.
An open banking framework can help your bank expand its digital reach through collaborations with fintechs, without the need to overhaul its banking systems.
Regardless of where current policies stand on open banking, it can help your bank build trust with consumers by providing them with more control over their data. This can help strengthen your financial institution’s customer relationships and become more competitive in today’s digital market.
Regulations and Policies Surrounding Open Banking
As of August 2025, open banking regulations remain in limbo in the United States. In October 2024, the CFPB finalized a rule that would accelerate the adoption of a secure open banking system in the U.S.
The rule gave consumers more rights, security, and privacy over their personal financial information. It also required financial service providers to get consent from consumers before sharing their personal information.
At the same time, a global movement of open banking initiatives designed to increase transparency and data portability emerged.
Banks, credit card companies, and other financial institutions also had to provide consumers with free access to their financial data when requested and transfer it to another provider.
But, on May 30, 2025, the bureau filed a motion in a federal court to vacate the rule, citing that it was unlawful and that the agency had overreached its authority. More recently, the CFPB filed a motion on July 29, 2025, to stay, stating that it plans to revise it in line with marketplace developments and new leadership priorities.
The court granted the stay, requiring regular status updates as the Bureau prepares to issue a new proposal within weeks. In the meantime, CFPB plans to engage with the public and stakeholders to address flaws in the original rule and potentially resolve ongoing legal disputes.
While much of the policies surrounding open banking apply to larger financial institutions, small and regional banks should stay up-to-date and navigate these grey areas where regulations are still in development.
Benefits of Open Banking for Small and Regional Banks
Open banking can provide a powerful way for your bank to grow in an evolving industry while increasing competitiveness and meeting changing customer expectations.
Here’s a closer look at the potential benefits of open banking for your financial institution.
Streamlined Operations and Lower Costs
APIs automate many banking services, including loan underwriting, data verification, and account aggregation. This can reduce manual work for your teams, lower error rates, and boost operational efficiency.
Improved Risk Management
Standardized API access leads to safer and more reliable decision-making. Access to real-time financial data supports more accurate risk assessment during the underwriting process.
Once a loan is issued, financial services providers can continually monitor a borrower’s financial health to identify emerging risks and proactively manage the loan.
New Revenue Opportunities
Open banking APIs can help your financial institution offer banking‑as‑a‑service (BaaS). This can result in new income streams outside of small business lending.
It can also allow your small or regional bank to boost its competitiveness by offering services through partnerships with third-party services and fintechs.
An Expanded Market Reach
Open banking opens doors to new markets, including underserved small businesses and business owners in rural communities. Your bank can partner with fintech providers to increase financial inclusion in areas lacking a traditional banking infrastructure to deliver flexible, digital lending solutions and banking products.
Alternative Credit and Lending Models
Open banking can provide access to transaction data, empowering your financial institution with real-time financial behavior to evaluate small businesses. This benefits both lenders and small businesses with limited credit files.
Your underwriting teams can more accurately assess risks through open banking APIs and feel more confident about extending credit. Open banking also facilitates faster loan approvals.
Enhanced Customer Insight and Personalization
Open banking can help your bank analyze customer spending and income trends in detail. In turn, this can help you customize lending terms, provide tailored advice, and offer better product recommendations. This level of personalization improves client relationships, fosters long-term loyalty, and increases satisfaction with borrowers.
A well-designed banking app can also provide real-time alerts, financial insights, and streamlined communication, resulting in a better user experience.
Steps to Implementing an Open Banking Solution
Open banking can help small and regional banks compete with larger financial institutions that are already leveraging open banking.
But making the transition requires forethought, particularly when your financial institution has limited technical resources.
Careful strategic planning, regulatory awareness, and a firm grasp on your bank’s internal capabilities can set the stage for success when adopting open banking solutions.
1. Assess your financial institution’s API readiness.
Review your bank’s current systems to determine how well they can support API-based data exchange. Many older banking systems aren't designed for modern data sharing.
Your financial institution may need to upgrade its software, invest in digital interface improvements to enhance the user experience, or adopt tools that enable secure data integration.
Many of these pain points are easily and more affordably accomplished by partnering with reputable and seasoned FinTech providers.
2. Stay apprised of the regulatory environment.
Open banking policies are continually evolving, particularly in the U.S. Your financial institution should have a clear understanding of the current legal landscape and be prepared for new compliance requirements as they emerge.
An internal compliance department or consulting with legal counsel during implementation can help your bank stay ahead of regulatory changes to avoid costly fines. A good Fintech partner will also have software that receives real-time alerts of any emerging policies.
3. Pilot your open banking program before scaling.
Launch a pilot program instead of rolling out a full open banking strategy. It can give your team time to identify technical gaps, learn from customer feedback, and fine-tune your bank’s offerings before a full expansion.
Starting small also reduces risk and builds internal confidence as your bank gains more experience with an open banking solution.
4. Train teams for easier implementation.
Open banking involves changes in partnerships, customer relationships, and digital transformation. Your staff will likely need training for new software and compliance protocols. Workflows are also likely to be impacted.
Encourage cross-team collaboration early, especially between IT, compliance, and lending teams, to ensure a smooth implementation.
5. Choose fintech partners wisely.
Successful open banking implementation results from working with partners who can support your core systems and help you stay compliant. Look for fintech companies and third-party service providers with a strong track record in small business lending.
Open banking platforms should integrate easily with your bank’s internal systems, accounting software, and client apps. A platform should also have built-in tools for customer authentication, consent tracking, and audit readiness.
Choose solutions that are scalable, configurable, and minimize the need for custom builds or major internal rework.
The Future of Open Banking
Many of the world’s leading financial experts believe open banking is the future of finance. And indeed, it has only surged in popularity and use.
The open banking market was worth $7.1 billion in 2024. The industry is forecast to reach $30.9 billion in revenue by 2030, with an annual growth rate of $27.9%, despite challenges relating to implementation and unclear regulatory rules.
Your financial institution must leverage digital tools to stay relevant and promote responsible use of data as more entrepreneurs apply for small business loans online. Until open banking regulations become clearer, the industry is being influenced by standardized practices that focus on innovation and competitive drives.
FAQs
1. What are the current open banking regulations in the U.S.?
As of August 2025, there is nothing set in stone. The regulatory environment surrounding open banking is in a state of upheaval. However, it isn’t expected to stay that way. Future compliance laws are anticipated due to the widespread adoption of open banking solutions.
2. What types of data are shared in open banking?
Open banking data can include bank account information, savings accounts, transaction data, and even a business’s cash flow information.
3. How does open banking benefit small business lending?
Open banking improves data access and analysis through real-time financial assessments of borrowers. It also uses cash-flow-based underwriting, which offers better risk assessment than traditional underwriting models. It also results in more personalized lending solutions and faster loan approvals.
4. Is data safe in open banking?
Open banking frameworks are designed with strong security measures, including multi-factor authentication, encrypted data transmission, and protocols for customer consent. Reputable fintechs also implement strict data protection policies to safeguard against unauthorized access and fraud.
5. What are the challenges of open banking for small and regional banks?
Smaller banks often have limited technical resources, outdated banking systems that weren't designed for API integration, and uncertainty around evolving compliance obligations. However, partnering with experienced fintech providers and adopting scalable, low-code platforms can help your bank navigate these obstacles.
Ready to implement open banking at your financial institution? Contact the experts at Biz2X to request a demo and learn how open banking can propel growth for your bank.
