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Education

Legal ease:

Open banking and neobanks for ISOs

By Adam Atlas Finally, fintech startups themselves build business models
Attorney at Law that take advantage of new platform technology and obtain
sponsorship by willing financial institutions to deliver a
ome people think #openbanking and #neobank new generation of financial services. There are dozens of
are just a couple of hashtags, but they are fintechs, but several of them, in no particular order, are
more than that. They are important terms that Rabbet, Relay, Rhove, Rent to Earn, Sedera, SeedFi Inc.,
S represent a transformation in banking taking Sendwave, Simple and Snowball.
place right now. Open banking allows third-party finan- What services are being offered?
cial service providers open access to consumer banking,
transaction and other financial data from banks and non- The financial services offered through open banks and
bank financial institutions through APIs. A neobank is a integrated platforms and fintechs cover the full spectrum
bank that allows clients to access its services by electronic of financial services including demand deposit accounts,
means only. savings accounts, prepaid issuing, acquiring services,
money transmission, crypto exchange services, brokerage
Merchants using merchant services sold by ISOs are being accounts, insurance and more. Imagine banking as a
solicited daily by open banking solutions providers and browser extension or plugin – that's what open banking is
neobanks; it is therefore worthwhile to take stock of key doing to financial services.
considerations of these new financial service providers.
Open banking has already matured in Europe, and 2020 Where does acquiring fit in?
is looking like a year when it will become quite a bit more Acquiring services for businesses has become increasingly
common in the United States. Visa's recent purchase
of open banking platform Plaid is one example of open a purely digital offering that can be easily integrated
with other technology or financial service platforms.
banking making a great start to 2020.
The advantage of incumbent ISOs is that they already
Who are the players in open banking? understand the merchant underwriting process –
something that cannot be learned in coding school. ISOs
Three key payers are driving open banking or neobanking. with sufficient technology can easily orient their merchant
First, are financial institutions such as banks or trust services offering to be integrated with a broader set of
companies that are willing to open their systems to APIs. services offered by a fintech or open banking platform.
Some popular examples of U.S. banks and trust companies
that are part of this new market are Evolve Bank & Trust, What are the risks for ISOs?
through a technology partner, Synapse, Prime Trust, BBVA For better or for worse, new fintechs tend to have great
and Bitgo.
confidence in their ability to conquer each market segment
Financial institutions such as these have invested in their into which they enter. For typical open banking or neobank
systems' ability to interact in a secure manner with third- startups, acquiring is but one of a number of services they
wish to provide.
party data platform services. Together, these financial
institutions and the third-party platforms come together For an ISO to collaborate with such an entity, the ISO should
to provide more creative and user-friendly access to
financial services. be mindful of whether they are there on a temporary basis
simply to teach the fintech about acquiring. By building
a robust relationship of the ISO to the fintech, the ISO
Second, are the technology platforms that sit between can perhaps secure its status as the preferred provider of
financial institutions and fintechs providing the tools by
which the fintechs can create business models that make merchant services for the whole fintech platform.
creative use of technology, banking and their own added
value. Some technology platforms in this space include Another significant risk emerges from the unique
obligations of ISOs to adhere to Visa and Mastercard
Synapse, Plaid and Central Payments.
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