Open banking opens doors for more fintech to provide bespoke financial services to customers globally. When finance moves to open banking, we start to see more opportunities for gaining access to financial services, cash flow, and money opportunities. For many, especially those in developing countries, this is a crucial piece of missing infrastructure.
We here at Sila firmly believe in the future of open banking, and we’re excited to see what the future of the fintech banking industry will hold.
What is Open Banking?
Open banking services are the use of third-party apps and APIs to connect payments and banking services. In doing so, fintech service providers are alleviated from needing to build or amalgamate all of the technology or code to provide that service and to host and encrypt all sensitive data.
While it may come as a surprise to some, open banking is a far more secure way to send sensitive banking information. Third-party banking apps can use the security available in API requests to receive the information. Because third parties use their own secure networks to store the data, this means more businesses can provide banking and payment services without taking on as much risk.
Note that open banking does not mean open data. Open data might contribute to the infrastructure that builds consumer banking tools, but they keep sensitive data protected and make the financial industry more secure.
As fintech grows and continues to tap into the potential of open banking and the power of digital banking, more people will be confident in the security, ease, and functionality that an open banking API provides. This will not only encourage more people to use open banking apps, but it will also grow the amount of financial connectivity available around the world.
How Fintech and the Open Banking Platform Work Together
While fintech refers to the use of financial technology in general, it is really in open banking and payment services where fintech has seen the most growth. Fintech apps can be built by one or two people and the services are outsourced with payment infrastructure, API connections, and managed financial service providers.
Fintech has exploded into this open banking revolution by showing consumers what can really happen when you set up financial services through open banking networks.
Prior to the introduction of a fintech company like Simple, online payment services or online banking were minimal, and what was available was facilitated by the major financial institutions. This is due to the process on which banking operations were based; banks were (and still are) required to submit to lengthy compliance protocols, audits, certification, and more to ensure that when they are accepting and sending money, they are verifying that the money was not part of a financial crime, or that the exchange of that money won’t make the financial network in the U.S. (international networks) vulnerable to money laundering or stealing.
These regulatory compliance needs are still in place but open banking functionality makes it far easier to remain compliant. One app can hire a payment infrastructure service provider who has a bank relationship or is a bank agent and they can share the setting up of necessary things like a money transmitter license (MTL) and complete necessary regulatory compliance processes, like SARs filing and OFAC.
With companies who “offload” or take on a large majority of the compliance needs, like sensitive financial data and customer data, this opens the doors for more individuals and entities to open a financial services app to facilitate payments or banking needs.
How Open Banking Opens Doors
Open banking is not just about letting more people start financial businesses; it’s much more than that. These new financial businesses are expanding the financial products that have previously been offered. Never before have many of these products existed, and they provide financial inclusion and financial access in a number of ways.
When we look at open banking, we recognize that it creates more opportunities for access to cash and funds flows; here are some ways that open banking opens doors:
- It allows more users the ability to access bank accounts, cash flow, or commerce in previously difficult to access markets
- It links international users with needed banking systems, like users who want to gain access to U.S. payment systems
- It can provide unique financial features, like financial automation, Ethereum wallets, social payments, investing, and saving money
- It can provide individuals in developing countries access to finances or reliable markets to make money
- It improves financial education pathways, engaging more consumers with ways to save money, invest in financial growth, and make money
These are just a few ways that open banking can support new areas of financial improvement and development.
How Sila Supports the Open Banking Future
As a fintech firm, Sila relies on the open banking model as it strongly relies on third parties to facilitate core features.
At Sila, we know how to do ACH really well, and we want to continue to provide that for our customers. We also know that ACH is not the feature that we need when it comes to financial services. We know that users are looking for financial automation, bank wallets, and that everyone needs to go through Know Your Customer (KYC) identification in order to access these services.
To stay focused on Sila products (our expertise being the ACH API), Sila outsources a lot of the other financial technology to reliable third parties who do these services really well. Therefore, we partner with the people at Plaid, Lithic, and more to enable key features like bank account linking and KYC.
Should Employees Be Given Digital Wallets?
Trends suggest that businesses will be handing out digital wallets to employees soon. Digital wallets are a piece of code that allows one party to make electronic transactions with another party. Is this the case? Read on to learn more.
Outsource your US Financial Compliance with Sila
Financial compliance is tedious and costly, and it’s even worse if you fail it. Outsource your US financial compliance with Sila.
Sending ACH Payments with Sila
With secure solutions like Sila, you can move ACH payments and money internationally faster (and more affordably) than ever before.
U.S. Know Your Customer (KYC) Regulations and ACH Payments
If you operate as a financial institution or a third party payment processor (TPPP) and wish to send money through the U.S.’s Automated Clearing House (ACH), then you must follow the guidelines for knowing and verifying your customers. Older guidelines were centered around Customer Due Diligence (CDD), but more updated measures look to KYC, or the Know Your Customer rule.
Using an International Money Transfer API
Sila’s innovative international money transfer API can expedite international payments and open up global financial systems.
How KYC and KYB Applies to Fintech Firms
Managing KYC and KYB can be tricky. Here’s a brief overview of what KYC and KYB means to fintech firms and how to prepare for it.