Open Banking May Revolutionize the World of Banking and Finance

To understand the concept of “open banking,” you have to start by understanding “APIs.” An API (application programming interface) is a programmer’s tool that makes it easy for a software, database or website designer to link to data. An API receives requests for data, and then serves up that data on demand. For designers, API’s offer drag-and-drop convenience, where the website designer can simply drag the API code for the desired data, place it in their own software, and make the needed data appear when desired.

APIs are the enabler of many rapidly emerging, exciting banking and financial tools (FinTech), accessed by consumers and businesses either online or through their mobile apps. They save software designers hundreds of hours of design time and effort. Equally important is the fact that data aggregators that have access to financial information can make certain that data is passed along, via their APIs, in a manner that meets today’s stringent regulatory environment.

Let’s say that a new web-based service wants to help consumers monitor balances and expenses of all of their bank, credit card, debit card and investment accounts. They might add visual data such as graphs that show where and how the consumer is spending money, and further add alerts that appear when balances get too low or spending at bars, restaurants and stores gets too high. API-based systems like Sila can enable designers to have immediate access to all of this data at thousands of financial institutions, and do so in a way that meets regulatory, privacy and cybersecurity needs.

Another example is MicroBilt. Its APIs provide secure access to a consumer’s credit files, bank performance history and risk assessment profiles. They can enable a web-based service to verify bank information on-the-fly before a business accepts a check, makes a loan or transfers money. It can also help verify that a new customer relationship is not fraudulent by confirming a consumer’s address, social security number and other vital information.

In 2021, the state-owned Central Bank of Brazil launched an open banking system, forcing it (and rival privately-owned banks such as Banco do Brasil, Bradesco and Santander) to share data on a more open basis. The Central Bank also set up its own touchless pay system called Pix, which offers consumers and merchants a simple, cost-effective payment method that is not controlled by the major private banks.

Online payment processor Stripe is partnering with Goldman Sachs Group and Citigroup to offer services such as bank accounts, credit cards and other cash management services to Stripe’s merchants and vendors. Stripe’s goal is to automate a wide range of its business customers’ banking needs within the Stripe platform. Shopify, Inc. has partnered with Stripe to offer Shopify Balance accounts to its massive base of merchants who use Shopify’s highly popular ecommerce platform and software.

Simply put, open banking speeds up transactions. At the same time, it reduces fraud and increases customer convenience. There are endless ways that it can be applied in a very cost-effective manner to develop revolutionary credit, mortgage, payment, leasing and transfer platforms. As a result, competition and investment in the FinTech arena is soaring.

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