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2023 was the year that AI went mainstream, but at Bud we’ve been working with AI to make sense of transactional data for years. Our advanced transaction enrichment helps our bank and fintech clients to develop rich, personalized apps and experiences and streamline their operations and risk management.
Bud’s US team is preparing for a big year ahead, working alongside existing and new partners to help them build AI into their offerings and grow their revenue.
In this piece, we speak to Corey Horr (Account Executive) and Chris Luth (Lead Product Manager) as they share their thoughts on the evolution of open banking in 2023 and their ear-to-the-ground predictions for 2024 and beyond.
Corey starts by noting the steep rise in AI interest during 2023: “With the tremendous adoption and innovation of the AI space, it has been coupled with guardrails.
“For example, in October, President Biden issued an executive order to establish a framework for responsible AI development and deployment in the US. There's also been a lot of scrutiny put on these ‘black box’ AI models recently (see UnitedHealth's recent lawsuit). So, what I've seen in the last year is a lot more eyes on AI.”
Chris expands on regulatory change, in relation to ‘open banking’: “The anticipation of the CFPB guidelines of Section 1033 of the Dodd-Frank Act brought open banking developments into culmination. This trend continued in terms of adoption – we saw a strong bottom-up adoption pattern through aggregators. With these aggregators, customers and financial institutions are all asking for open banking. 2023 saw a really big development.”
Finally, Corey also describes the shift away from credit reference agency data to generate greater accuracy within the lending industry.
“Over the years, the default has been the use of credit reference agency data specifically to approve loans. But there’s recently been a shift towards adopting more alternative data sets, such as transaction data. This is a real win for consumers because it provides a more holistic view into the loan application process, rather than only relying on one set of data.”
Corey explains how AI is now a normal part of our daily lives: “I was thinking about my daily routine, and it’s amazing how much we interact with AI..
Here’s an example. Every morning, I drop my child off at school. A notification appears on my phone telling me: ‘It’s going to be an eight minute drive based on traffic’. I never told my phone that I’m making the trip! It just ‘knows’, from patterns, that I’m going every single morning.”
But from a financial institution standpoint, Corey believes there’s still a lot of catching up to do.
“I would say many financial institutions are laggards. I don’t believe they’re at the stage that a lot of these other tech companies are with incorporating AI. I think it’s a major opportunity for lenders, retail banks and fintechs to become relevant and as impactful as other tech companies. A lot of dormant data could be leveraged, and I’m sure that’s going to be talked about in years to come. Especially with the legislation on the table”.
Chris concurs that the financial sector has fallen behind: “I don’t think the changes have really impacted the industry yet. For financial services providers, these changes have generated the need to be in a strong position, relative to open banking. Not just to comply with the new regulation, but to fulfill the spirit of the CFPB’s values, and improve both competition and consumer outcomes.”
However, Chris predicts that for the everyday customer, even these current changes won’t transform their experience enough to be notable.
“Most consumers will never know that it was Section 1033 of Dodd-Frank and the CFPB that brought out the most forward-thinking institutions. It’s a bit like the metaphor of boiling the frog; which suggests that people won’t realize small changes until they feel a huge impact.
I think people are used to linking their accounts. But where consumers will really notice a difference is not just the prevalence of open banking and linking accounts, but in particular, when payments and transfers are able to be automated. Or when they have the ability to manage bills and time different payments automatically. That additional layer is what people will notice the most.”
Chris and Corey split their predictions into three parts: providers, aggregators and generative AI.
“The impact for providers is that they’ll be forced to devote a good budget to making this data available,” says Chris. “It’s very clear that the spirit of those new rules is open competition, and part of that is forcing the larger providers, who can most afford it, to take the burden. This should give the smaller and more regional providers an opportunity to benefit.”
“In 2024, there will be headwinds for aggregators to keep pace,” predicts Chris. “I think they’ll focus on investing in adoption and compliance, and we may see some increase in demand. This all points towards a rapid adoption curve, even with the industry uncertainty.”
Corey thinks that 2024 will see AI bringing positive impacts for financial institutions and the consumer: “I expect to see more generative AI slowly adopted in the financial space, whether that be through chatbots, or recommending specific products based on purchase history,” he says. “It’ll allow customers to have better control over their finances. Banks can benefit by thinking about how they can grow their business best: it’s by empowering their customers because when a customer has better control, they’re able to deposit more money.”
Both Chris and Corey mention that currently, companies are restricted from giving financial advice unless they are regulated or licensed. “That’s the line that needs to be walked, right? There’s a tremendous amount of value in simply driving insights or explaining what’s going on with a customer’s finances,” Corey says.
But, he continues by noting that this line will bring more scrutiny to the AI space: “I think that AI is going to be put under the microscope a lot more. Consumers are going to want to know when something is making a decision – how did it come to that decision? And I think they have every right to know.”
Chris thinks that the current economic landscape might overshadow AI developments: “We’re in the midst of the worst consumer credit cycle since the 2008 crisis. And while we’re seeing signs of improvement, staying in a downturn stands to be the biggest challenge of the next year.”
Chris expands on his previous point, by stating that the biggest challenge facing all financial institutions is going to be uncertainty.
“Every day that we get closer to the elections, the uncertainty decreases. But it’s still extremely high. If you have six potential outcomes, that’s more uncertain than having two potential outcomes. But getting closer to one, whether it’s an upside or downside for you, the outcome is a reduction of options and uncertainty."
Reductions in uncertainty generate positive indicators in terms of inflation and wage growth, contributing to economic growth. We’ll see a lot of stabilization in the consumer credit market, which leads a return to business as usual lending for financial providers. So there’s actually a lot of opportunity too.
In particular, a challenge of those institutions is competing on price for deposits, and maintaining the margin as institutions switch over to lending. But overall, I expect 2024 to be less challenging than the last couple of years.”
Corey focuses specifically on the challenges that will face community and regional banks: “I think the biggest challenge for this group is going to be getting left behind,” he says.
Compare them to some of the largest banks in the US, who have full departments dedicated to AI and machine learning. Many of the community and regional banks do not have the dedicated personnel to do that, so they’ll need to partner with fintechs.
If they fail to do so, they'll miss out on delivering highly personalized experiences and financial guidance to the consumer – all things that the larger financial institutions are positioned well to deliver.”
Corey splits Bud’s 2024 focus into two parts:
Our Drive product is central to these ambitions. Corey explains: “Drive gives institutions the ability to create customized segments and really zero-in on offering the right product at the right time.
Chris doubles down on the idea that partnering with Bud means making the most of open banking and AI.
“Our financial institution clients better support their consumers. I want us, at Bud, to participate in the 1033 evolution and help financial institutions dominate. Because once data is available, banks need to be able to use it, and Bud helps more than that. We want to find and support the institutions that are focused on leading and beating the market.”
Chris also makes clear that continuous product improvement is always at the heart of Bud’s operations: “We’re also going to focus on these conversational generative tools that help to make sense of different regulatory and bank policies,” he says. “This takes advantage of all the interconnectedness that we can generate with open banking data and API systems.
“Sometimes, I feel wide-eyed because I cannot believe some of the demos that I see, and in particular for Bud, we have the right level of human intervention. There’s no black box running amok, it’s very explainable. We’re excited to share some of our innovative developments in 2024.”
For the team at Bud, and especially Corey and Chris, success in the next 12 months will be measured by growth.
“We truly believe in the value we can bring – to customers and the financial institution. For success in my role, it’s being in front of every single financial institution”, Corey says proudly.
“Success looks like watching our growth in North America, and the US in particular, take off. Now, we have live value – real accounts and transactions flowing through in production,” Chris adds. “Next year, I’m focused on impacting the US market as much as I can. I don’t want to lose to a competitor with an inferior product but a better sales pitch.”
Regulation requires institutions to open access to financial data. And so, the race is on for financial institutions of all shapes and sizes to develop products and services that harness transactional data to personalize customer experiences and reveal new revenue opportunities.
AI will help consumers make sense of their finances, and institutions to understand their customers, in greater detail than ever before – and with minimal effort. The outcome will be a deeper relationship between financial services providers and their customers which takes into account the individual consumer’s wants and needs like never before.
Embrace open banking and AI by talking to Bud. We’re an established data intelligence provider, with years of experience in both open banking and AI. Find out how we can help you innovate and compete today.
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