Open banking is a financial concept that involves the sharing of financial information and data among various financial institutions, third-party developers, and other entities, with the explicit consent of the account holders or consumers. The goal of open banking is to enhance competition, innovation, and efficiency within the financial industry by allowing authorized third parties to access and use financial data and services.
Key features of open banking include:
- Data Sharing: Open banking enables consumers to share their financial data securely with third-party service providers. This data may include account information, transaction history, and other financial details.
- APIs (Application Programming Interfaces): Financial institutions provide APIs that allow authorized third-party developers to access their systems and build applications or services. These APIs facilitate secure and standardized data exchange between different financial entities.
- Innovation: Open banking encourages the development of innovative financial products and services by fostering collaboration and competition among financial institutions and fintech companies. This can lead to the creation of new payment solutions, budgeting tools, investment platforms, and more.
- Consumer Control: One of the principles of open banking is to give consumers greater control over their financial data. Consumers can decide which third parties have access to their information and for what purposes.
- Competition and Choice: By allowing third-party providers to access financial data and services, open banking promotes competition in the financial industry. This increased competition can result in more choices for consumers and potentially better services and pricing.
- Regulatory Frameworks: Open banking initiatives are often supported by regulatory frameworks and standards to ensure the security and privacy of financial data. Regulatory bodies may set guidelines and rules to govern the implementation of open banking practices.
Why Open Banking?
If you are looking for an Open Banking provider, it is most likely because you are facing one or more of the following issues:
- Settlement delays associated with card payments pose challenges for your business, complicating the reconciliation process.
- Minimizing fraud and mitigating chargeback risks is crucial, especially considering the susceptibility of cards to misuse.
- The impact of credit card processing fees on your profit margins, particularly for high-value items, is a concern.
- Enhancing visibility into payment transactions post-customer interaction is essential for developing quicker and more intuitive products and experiences that foster customer loyalty.
- Having invested significant time in designing user interfaces and customer journeys, you seek an equally intuitive method for initiating payments.
Selecting an Open Banking Provider
Many individuals tend to believe that opting for a dedicated Open Banking provider solely focused on payment initiation is the way to go. However, this approach comes with limitations as it restricts the scope of what can be achieved with Open Banking. Relying solely on a payment initiation provider means lacking comprehensive visibility into funds and the inability to automate reconciliation and initiate refunds.
In my experience, I advocate for a more comprehensive solution—working with an Electronic Money Institution (EMI) licensed Open Banking provider. Choosing an EMI-licensed provider enables you to harness the full spectrum of benefits offered by Open Banking, providing a more holistic and versatile solution.
When searching for an Open Banking provider, the three key areas to evaluate are:
Enhanced clarity on fund settlement timing
Ideally, you’d prefer your payment provider to have the capability to create dedicated accounts tailored to your needs and those of your end-users. Typically, this is feasible when the provider holds the necessary license.
The capacity to establish an unlimited number of accounts ensures unique account numbers and sort codes for both you and your end-users. This not only enhances visibility into fund movements and settlements but also provides 100% confirmation of received funds since each end-user is linked to their individual account. Without this feature, you may only have a partial understanding of whether funds were sent, lacking confirmation of their settlement.
Facilitate seamless refunds for an enhanced customer experience
An Open Banking payment provider, offering the underlying payment account, plays a crucial role in simplifying the refund process. Utilizing a unique account with its dedicated account number streamlines fund tracking and management. This expedites the refund process, leveraging the same payment rails through which the funds were initially received. Not only does this lead to improved service, garnering appreciation from your customers, but it also helps prevent an unnecessary burden on your support teams.
Establish connections with banks in your target market(s)
Optimizing Open Banking requires accessibility for all your customers. Ensure that your Open Banking provider has extensive coverage, especially with major banks in your operational regions. Ideally, the provider should be able to connect seamlessly with all the banks your customers engage with, enhancing the overall effectiveness of your Open Banking solution.
Interested in Open Banking? Adam Tracy assists with identifying Open Banking providers as well as licensing for aspiring Open Banking providers.
Be sure to reach out with any questions or comments!
Otherwise, you can book a free consultation here.
About Adam Tracy
Adam Tracy is a payments expert and entrepreneur who specializes in payment systems, blockchain technology, digital currencies, and other emerging technologies. He is the founder of Blockrunner, LLC that provides consulting services to clients in the blockchain, payments and cryptocurrency arenas.
Tracy has been involved in the payments industry as an attorney, consultant and entrepreneur since 2005, while he was become an expert in blockchain and cryptocurrency since its advent in 2013. Tracy has worked with a wide range of clients, including startups, established businesses, and investor – both in the United States and worldwide. He has advised clients on a wide range of compliance, legal and operational issues related to payment transfer systems, crypto token generation and architecture, cryptocurrency exchanges, regulatory licensing, smart contracts, and other blockchain applications.
In addition to his consulting work, Tracy has founded several companies in the payments, blockchain and cryptocurrency space, including a digital asset hedge fund, licensed electronic money institution and a blockchain-based tokenization platform. He is also a proponent of decentralized finance (DeFi) and has been involved in various DeFi projects.
Tracy is also a frequent speaker and writer on blockchain and cryptocurrency topics. He has been featured in a wide range of publications, including Forbes, Hollywood Reporters, CNBC, Reuters, CoinDesk, and Bitcoin.com.
Find Adam: https://linktr.ee/adamtracy
Blockrunner, LLC., is a financial services match-making marketplace and consulting company. We are not a bank, FI/NBFI, Payment Service Provider, deposit taking institution, trust, or money services business of any kind. We are not regulated by any financial regulator. Banking, Payment, Processing, and Licensing services are provided by our participating members. This website is for informational purposes only and does not constitute legal advice. If you need legal advice, please consult a licensed attorney in your jurisdiction.