What U.S. Insurance Companies Can Learn From Europe About Open Banking

The impending Dodd Frank regulation will allow consumers to access and share their financial data with third parties.

The idea of open banking began in Europe, specifically with the Single Euro Payments Area’s Payments Services Directives (SEPA PSD1-3) was first introduced in 2007. Following its success in Europe, open banking has made its way across the Atlantic to America.

For U.S. insurance companies, the urgency to embrace an open banking transformation strategy is amplified by the impending Dodd Frank 1033 regulation, which will promote competition by allowing consumers to access and share their financial data with third parties.

Open banking’s journey from the European Union to the U.S.

It is advantageous for other regions of the world (in this case, the U.S.) to learn from another’s experience (Europe) when implementing new technologies or processes, as they have had several years to refine and troubleshoot, especially complex, large-scale initiatives like open banking.

A helpful analogy would be a younger sibling watching and learning from their older sibling as they go through high school, try a new sport or join the workforce. The American insurance market is in this position, poised to benefit from historical hindsight.

The U.S. is beholden to the Dodd Frank 1033 regulation, which outlines that data sharing must occur through Application Programming Interfaces (APIs). Starting next year, open banking–specifically, data sharing with third parties–will become obligatory, and roughly 4,500 U.S. banks, the largest of which must comply by April 2026.

If what happened in Europe is any indicator of what is to come in the United States, this open banking transformation will create enormous opportunities for the insurance industry, benefiting insurers and consumers alike.

Of course, open banking and data sharing in Europe won’t map exactly to the United States. One of the main objectives of SEPA was to standardize payments, activity and charges across all the original 28 European Union member states (now 27 in the wake of Brexit). While the United States is a federated group of states, many countries comprise the European Union, each with distinct financial service cultures, behaviors and laws.

U.S. insurance companies won’t function the same way–look no further than the Dodd Frank 1033 regulation–still, Europe should serve as a helpful model for those looking to avoid pitfalls and see where to cherry-pick the best elements of open banking transformation.

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