You probably know more about open finance than you think.
Have you ever used Xero? Then you’ll know how your transaction data auto-magically appears every day. Have you connected your bank accounts to apply for a loan? Or chosen the pay-by-bank option when buying flights from Air New Zealand?
These are examples of open finance in action. Over the last two years, reporting entities have begun to leverage this type of bank account connectivity to simplify AML processes. This article describes the key use cases.
The customer starts by approving the specific data that will be shared with a reporting entity. This will typically be limited to the account address, account holder, and account number.
Then the customer will log into their bank, and select the specific account(s) that they are sharing details from.
The bank account is now connected, and Simplicity can make an API call to retrieve the data that has been permissioned by the user.
Cloudcheck uses Akahu as an address verification option for various reporting entities. Using the bank account as a source of address verification increases the match rate, especially for younger demographics that tend to have poor coverage on address databases.
Sugar Wallet uses bank account connectivity as an alternative to biometric verification.
The holder of the bank account is matched to the name on the driver licence or passport. Since the customer has just logged into that bank account, it provides evidence that the person is who they are claiming to be.
This process is similar to a linking mechanism described in the July 2021 explanatory note (where you look at the first deposit from a customer and check that it came from an account held in the same name). The difference is that the linking mechanism is done immediately during onboarding, rather than waiting for the customer to transfer funds into your system.
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Tiger Brokers verifies each customer’s bank account before processing a withdrawal request.
Bank account verification is a way to control the point at which funds enter or exit your system.
Step 1 is to verify that the bank account is held in the name of your customer. Step 2 is to ensure that deposits and withdrawal requests will be restricted to this verified account. This is a great way to reduce the risk of your systems being used for money laundering.
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Open finance has started to make AML processes more effective for reporting entities, and simpler for customers.
