How open banking can streamline M&A for financial institutions

As financial institutions think strategically about potential mergers and acquisitions in their future, open banking may be a catalyst for streamlining such transactions. While use cases for open banking—which allows third-party service providers to access customer financial data from banks and nonbank financial institutions via application programming interfaces (APIs)—often focus on the benefits to customers, this service model can also enable accelerated integrations.

Although the fate of the Consumer Financial Protection Bureau’s open banking rule is unclear as of mid-2025, leading financial institutions will likely continue to pursue open banking capabilities, especially to stay competitive with fintech companies over the long term.

M&A challenges for midsize financial institutions

Banking M&A has accelerated amid a more favorable regulatory environment and pent-up demand. Such deals can be a powerful strategy for middle market and community banks to compete with larger banks and fintech companies and address their current challenges by providing increased scale and efficiency, broader market reach and improved financial stability.

Middle market banks face unique challenges when navigating the cost and duration of an acquisition. These include issues with:

• Speed-to-market. To realize the gains of M&A, quicker integration is better; this results in higher customer retention and enables teams to return to business as usual more quickly. For midsize organizations (particularly those without recent M&A history), getting through deals rapidly can be difficult.
• Client experience. Clients expect their bank to be a reliable safe haven. Changes involved in acquisitions can make it difficult to maintain the high level of customer experience expected. From contact centers to personalization, banks need to continue prioritizing the client experience throughout their M&A cycle to succeed.
• Revenue loss and synergy capture. While M&A transactions can grow the balance sheet and bottom line through revenue and cost synergies, maintaining focus on these goals as the specifics of a deal get underway can be daunting.

How open banking can help combat these challenges

Open banking can accelerate community and midsize banks’ M&A lifecycle, enabling a greater focus on revenue generation and limiting customer churn. Open banking can also help improve banks’ M&A transactions via:

• Streamlined data sharing. Open banking relies on the use of secure APIs to facilitate the sharing of customer data between banks and authorized third-party providers. This technology creates efficiencies by allowing customer data to be seamlessly transferred and accessible across merged entities. Data sharing also accelerates integration timelines while maintaining integrity.
• Unified data infrastructure. The open banking model promotes the creation of a unified data infrastructure that is crucial for post-merger integration. The standardization of data formats and protocols can reduce the complexity and cost of data operations, allowing for easier data consolidation from multiple sources into one cohesive system. This, in turn, can enable an organization to become a serial acquirer or integration factory.
• Improved data quality and consistency. The open banking model pushes for the normalization of data meaning and usage, which helps ensure key performance indicators and key risk indicators are consistent and accurate across all entities. This allows for better risk management and facilitates more informed and strategic decision making.

Once built, open banking can also help banks overcome technology and innovation challenges in your everyday business operations, by way of:

• Streamlined technological integration. Using open banking APIs, banks can adopt new technologies during M&A transactions, reducing the complexity and cost associated with technology integration. This allows merged entities to offer innovative digital services to customers more quickly.
• Broader market reach. Streamlining the M&A process can help banks increase their geographic footprint and customer base. With the open banking model, banks can reach underserved markets and demographics by offering more inclusive and accessible financial services.
• Operational efficiencies. Banks can use the open banking model to integrate fintech solutions, automate processes, improve data management, and enhance security measures, ultimately driving greater efficiency and profitability. Automating processes and making them more easily repeatable also fosters the “serial acquirer” position for the financial institution.

The takeaway

As more nontraditional competitors continue to crowd the market, an open banking infrastructure and solution can position financial institutions to accelerate, standardize and simplify their M&A processes, putting them in a better position to compete in the future.

^{Justin Wood contributed to this article.}