Open Banking Has Begun to Intrude on Banks’ Customer Relationships

The humble demand deposit account has been the cornerstone of the financial services system for decades. However, banking customers who manage all their finances through checking and savings accounts at a single financial institution are in short supply.

At the same time, more fintech companies have transformed from niche, one-off services to full-service financial ecosystems.

As James Wester, Co-Head of Payments at Javelin Strategy & Research, detailed in the 2026 Debit Payments Trends report along with Javelin Analyst/Content SpecialistCraig Lancaster, the emergence of open banking, coupled with novel payment rails, has created an environment in which financial institutions must adjust their long-held strategies to stay at the forefront of their customers’ financial lives.

Accounts Under Threat

Open banking has gained significant traction in many of the world’s leading economies. However, the well-established U.S. financial infrastructure and a market-driven approach by its regulators have hindered the growth of a formalized system of open banking.

Although there may be some debate about how and when the final product will appear, U.S. open banking is inevitable.

“The idea of having open access via APIs to data and to accounts—that’s not going to go away,” Wester said. “It may change based upon the way regulations are crafted and the way the market develops, but at its core, that open-banking paradigm where you and I have access to our bank account and to the data—that’s going to continue. Customers want that, small business customers want it, and commercial clients want it.”

This demand for open banking has been driven, in large part, by the functionality and efficiency that fintech companies have delivered. Although the established banking paradigm isn’t likely to be replaced anytime soon, the traditional banking relationship is no longer an integral part of how many consumers interact with the economy.

For example, the traditional peer-to-peer model consisted of a consumer bank account linked to a P2P service like Venmo or Cash App. Now, fintechs like Venmo offer accounts with debit cards that can operate independently. Although many of these P2P companies don’t offer FDIC insurance, that may not be a dealbreaker for customers who are focused on convenience.

Although this trend may not be novel, it is accelerating. This means that the conventional bank account, and more important the customer relationship, has been jeopardized.

“As open banking has made financial services more modular for the retail consumer—the ability to have accounts that you pay out of, accounts that you save into, accounts that you pay friends out of, accounts that you pay bills out of, maybe accounts that you shop with—having all of that and that ability to immediately access that through open-banking standards means that the core DDA, that core relationship you have with your primary financial institution, is under threat,” Wester said.

Reintroducing Friction

Along with these new players, the debit landscape has been disrupted by the emergence of real-time payment rails. Instant rails like FedNow and the RTP network have gained traction in the United States, and the benefits of real-time settlement have become increasingly evident.

However, faster payments create a set of challenges that U.S. financial services providers must address.

“Traditionally, the idea of friction is that it is a bad thing in payments,” Wester said. “What we’re beginning to see, though, is that friction had some benefit. When you have batch processing—where all the transactions are batched together and cleared and settled overnight or over a couple of days—what it allows you to do is flag any suspicious transactions, fraud, accidental transactions, or mistakes.

“When you’re talking real-time gross settlement, it is immediately pulled from your account; it’s settled in real time. What we’re beginning to see is that as real-time payments mature, fraud exceptions are able to flow through the system just as quickly as real-time settlement.”

Because many financial institutions don’t yet have the proper fraud management tools to flag exceptions in real time, tension is rising between the growth of real-time payments and the need for customer protections.

This tension is likely to exacerbate as real-time payments take precedence in retail situations. Financial institutions could be forced to reintroduce friction points to ensure that consumers are fully protected.

Ripe for Exploitation

However, along with the challenges that arise from emerging payment rails, opportunities are also blooming. One of the main debit trends is that more financial institutions are likely to be involved in payouts.

Payouts from commercial and government entities have typically been conducted through the ACH protocol, but many debit rails have begun to gain traction in these use cases. For example, an organization could use Visa Direct or Mastercard Move to push money directly into a recipient’s bank account.

“The implications are big for ACH,” Wester said. “ACH does allow for certain faster settlement, but direct debit just puts money in consumers’ accounts quicker, and that’s what consumers want. Especially when you’re talking about things like insurance payouts when there’s been a disaster, people want their money.”

Because the payout market is substantial, more financial services companies are considering these services. This could cause a marked shift in the way financial institutions view debit products.

“It doesn’t mean ACH goes away, but it does mean there’s a significant pool of transaction volume that can go over those direct-debit rails,” Wester said. “I think that if banks are aware of that and start pushing for that—because they make more money off of that—then that’s an area that’s ripe for exploitation by banks. I think that’s going to be an interesting thing that happens over the next probably 12 to 24 months.”

Playing to Strengths

This dynamic landscape means financial institutions must adjust to ensure they meet customers’ expectations. While regulatory decisions may dictate some of these changes, open banking is about much more than a data-sharing standard.

Customers increasingly desire a connection with their bank. In the past, many financial institutions have taken the tack that consumers need their bank more than the bank needs them. Accordingly, many institutions have given less attention to less profitable accounts.

However, as consumers have been offered more options, the balance of power has shifted.

“Financial institutions need to do better at working to see customers over time,” Wester said. “In other words, lifetime value—recognizing that the consumers that stay with you, grow with you, and that their profitability grows as well. They start going from being just a simple DDA where they pay bills to credit cards, to car loans, to mortgages, and to 401(k)s.”

Banks shouldn’t gauge customers’ profitability based on a single moment in time but should instead seek to predict how a customer will grow, then proactively offer solutions.

“If I have my account through Venmo, Venmo doesn’t really have the ability to provide me with a car loan or a mortgage or a 401(k),” Wester said. “What banks need to do is play to that strength of being a core part of overall financial health, as opposed to just being a place that provides an account that is FDIC-insured and allows them to pay bills.”

Fighting for Deposits

As part of this mindset modification, many financial institutions will have to adjust how they view debit rails. The demand deposit account has long been the fundamental building block of financial health, and debit products have been largely unchanged for decades. This is no longer the case, as more consumers are opting out of the traditional bank account.

“It’s no longer, ‘I have money; I put it in the bank, and the bank is how I do all of my financial services,’” Wester said. “It’s now, ‘I have money; I put it where I want it to go; I can access it however I want—through a device, through my computer, through my phone. I’m more reliant on different interconnections than I am on a financial institution.’

“That could have some profound impacts on banks because they depend upon those deposits to be able to provide loans. What will accelerate that even more is as we start looking at things like stablecoins, deposit tokens, and crypto, and as people begin to pull their money out and put it into things like that for whatever reason. As those use cases develop, that’s going to have some profound impacts on financial institutions. They’re going to have to fight harder for those deposits.”

0

                    SHARES

0

                VIEWS
            

            

            

                Share on FacebookShare on TwitterShare on LinkedIn

Tags: ACHBankingDebitFintechOpen BankingP2PPayoutsReal-time payments