The Evolution of Data Sharing Part 1: From OFX’s Foundation to Today’s FDX

Since the inception of Financial Data Exchange (FDX) more than ten years ago, its main goal was to create an industry standard for data exchange, creating a US standard similar to the European PSD2 version which governs electronic payment systems. FDX aims to set standards not only for data sharing itself but also for the authentication processes surrounding it. Essentially, FDX is a format for data exchange and an Application Programming Interface (API) to be precise. Its roots can be traced back to Open Financial Exchange (OFX), which utilized a flat file structure resembling a text file with tags encompassing values, akin to HTML. OFX is outdated in many ways, but still remains in use today as data protocol at some financial institutions, notably by integrated Intuit products. However, the industry as a whole is transitioning towards the more advanced FDX format, keeping up with important advancements in security, access, and financial data integration features. This transition is requiring financial institutions to evaluate their financial data integrations and make decisions as to how to keep up with, and ahead of the industry.

Lori Frederick, Ninth Wave’s Head of Banking and Payments explained “Ninth Wave was a provider of two-way open financial data sharing via OFX long before Open Banking and Embedded Finance became commonly used industry terms. We remain a prominent expert in the ever-evolving field. Today, we continue to launch new Quicken and QuickBooks implementations in addition to offering integrations to an expanding list of fintech, ERP, and accounting systems on our SaaS-based platform. FDX is the standard we use for our Open Finance APIs and our off-the shelf connectors we build.”

Today, FDX boasts several groups diligently working on maintaining and updating the standards and specifications. Control lies at the heart of FDX’s mission, offering banks the power to govern their data sharing access while ensuring transparency and obtaining user consent. This approach prioritizes traceability, allowing for a comprehensive record of consented data sharing activities.

FDX has emerged as a crucial force in the realm of financial data exchange, driven by the ambition to establish industry standards, empower banks with control, and uphold transparency and consent as fundamental principles of financial data sharing.

THE BIRTH OF FINANCIAL DATA SHARING

The exponentially increasing demands for data access beyond the confines of bank records marked a turning point in data sharing, where the need for standards became paramount. In the early 1990s, data was being shared with pioneering financial software like Quicken, QuickBooks, and Microsoft Money, representing the early stages of what we now know as open banking, even before the term gained popularity.

“Banks interacted with Quicken and QuickBooks via OFX, submitting bill payments, balance transaction data, and even handling customer service interactions,” added Lori Frederick.

“State of the art for the time included communication like being able to type a question or issue within your Quicken desktop product and have it seamlessly transmitted to the bank’s call center or third-party vendors like Fiserv. The response would then make its way back into your desktop product. This level of integration was truly remarkable for its time, surpassing what was possible on the web. These early endeavors laid the foundation for data sharing.”

Fast forward to today, and we find ourselves in a landscape where the consumer demand for accessible data has surged, driven by the rise of fintech applications requiring instant access to financial information and seamless deliverability from a variety of sources available at our fingertips.

Furthermore, bank corporate customers’ demand for data access has also accelerated the need to embed financial services within accounting, ERP, and treasury management systems. With the rapid volume of data sources and data recipients increasing, the need to open up data became more pronounced while existing IT infrastructure proved insufficient in terms of security, robustness, and technological capabilities. These factors all highlighted a gap in the market and contributed to the evolution of FDX as a unifying solution.

As the industry moved to adopting shared standards, integration and compliance with FDX standards became crucial considerations for businesses, particularly when engaging potential banking clients. As FDX compliance became a key aspect in prospect evaluations, certification programs also became more common, reflecting the growing significance of adhering to industry standards.

For example, Ninth Wave has developed a certification process to ensure compatibility with FDX standards and leading financial software. This demanding testing regimen confirms that interactions and data sharing with their financial products meet stringent standards, while also improving security and simplifying connectivity.

FDX OFFERS CLEAR ADVANTAGES OVER OFX

FDX offers enhanced security compared to OFX due to its API-based nature and adherence to OAuth standards. By tokenizing user credentials and storing them securely, FDX minimizes the risk associated with sharing sensitive information, providing a robust security enhancement.

In addition, FDX represents a modern approach to data sharing, leveraging the power of APIs instead of relying on static XML files. This shift enables greater access and control, fostering more seamless and efficient integration between financial systems.

Furthermore, FDX unlocks a significantly expanded data set, encompassing various types of information such as payments, tax data, and a more comprehensive range of interest rate data. This broader scope of data empowers businesses and individuals with deeper insights and a more holistic understanding of their financial landscape.

NINTH WAVE LEVERAGES FDX TO EXTEND DIGITAL DIALOGUE WITH OTHER SYSTEMS

Ninth Wave has adopted a flexible approach to financial data integration. While we receive data from banks using various formats, we ensure that when we share this data with third-party systems – whether that is an accounting product or direct consumption by a fintech app – it is standardized FDX. This enables the bank to connect to the Ninth Wave platform just once to gain universal integration with any application – whether it’s an OFX based Intuit product or FDX structured data fed into a NetSuite SuiteApp, Ninth Wave handles the burden of data translation and bespoke testing processes. FDX serves as the backbone of our data standardization process, allowing us to securely streamline data exchange across different systems, future-proofing connectivity for our clients and their customers.

The journey from early data sharing with financial software to the present-day evolution of FDX has been shaped by the growing demand for accessible and secure data, the rise of FinTech apps, integration with accounting systems, and the establishment of certification programs. FDX continues to play a pivotal role in driving standardized data sharing practices across the industry, which continues to evolve as regulatory bodies and pending legislation also weigh in on industry standards.

In our next installment in this blog series, we’ll explore the potential for building a utopian state of financial data sharing, the core essential ingredients that comprise such an environment, and considerations on how to develop a roadmap to achieving it.

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