Open finance is often seen as a major change in digital finance. At its heart, it aims to give people and businesses more control over their financial data and the ability to use it on various platforms. However, open finance cannot operate in isolation. It requires a system that connects banks, fintechs, businesses, and regulators in a reliable manner. This is where connected banking plays a role.

Connected banking is not just a technical improvement. It builds the trust needed for secure data sharing, automated payments, compliance, and new business models. Without it, open finance remains a concept. With it, we can see practical applications in many industries, including lending, insurance, supply chain financing, and wealth management.

Let’s dive deeper into how connected banking influences open finance ecosystems and why it is increasingly important.

What Is Connected Banking?

Connected banking means integrating financial institutions, businesses, and technology platforms through digital systems. Think about APIs, escrow accounts, compliance frameworks, and real-time data sharing. The aim is not only to connect but also to establish trust and control.

When a bank or fintech participates in a connected ecosystem, every transaction, record, or settlement can be tracked, confirmed, and automated. This applies not only to consumer payments but also to B2B transactions, trade finance, and digital lending.

Connected banking serves as the link between traditional financial institutions and the broader open finance movement.

Understanding Open Finance Ecosystems

Open finance builds on the ideas of open banking but goes much further. It not only addresses payments or bank account data but also includes:

• Investments and wealth management

• Insurance products

• Lending and credit information

• Business transaction data

• Supply chain and trade records

This ecosystem involves banks, fintechs, non-bank financial companies (NBFCs), regulators, and technology providers. The goal is to offer customers, including businesses, more transparency and control.

However, this ecosystem cannot rely on goodwill alone. It needs a system that ensures compliance, minimizes fraud, and keeps money and data secure. This is where connected banking is crucial.

Why Connected Banking Is Key to Open Finance

Here’s what connected banking offers to open finance:

1. Data Integrity and Trust

In an open finance setup, several platforms access financial data. Connected banking makes sure this data is shared through secure, regulated channels. This fosters trust among parties and lowers the risk of fraud or data manipulation.

2. Real-Time Settlements

Imagine lending platforms that can issue loans instantly or supply chain partners settling invoices on the same day. Connected banking enables this by using escrow accounts, APIs, and automated reconciliation.

3. Compliance at Scale

Regulations from authorities like the Reserve Bank of India (RBI) demand transparency. Connected banking helps businesses stay compliant by incorporating checks at every stage of a transaction.

4. Expanding Financial Products

Open finance's strength lies in the services built on top of it. With connected banking, new products like invoice financing, digital escrow, and embedded payments can grow rapidly and with lower risk.

Industry Use Cases

Lending and Credit Platforms

For lenders, open finance means quicker access to borrower data. Connected banking automates and traces the disbursement, repayment, and reporting processes. For example, invoice financing platforms depend on this model to enhance working capital securely.

Insurance

Open finance lets insurers tailor products based on customer financial data. Connected banking facilitates premium collection, claims processing, and fraud detection without delays.

Supply Chain Finance

Supply chain partners, from manufacturers to logistics companies, rely on prompt payments. Connected banking, through escrow and reconciliation, ensures that funds are released only when specific conditions are met, enhancing trust throughout the chain.

Wealth and Asset Management

Wealth platforms rely on transparency. Connected banking simplifies the process of gathering data from banks, brokerages, and mutual funds, providing clients with one reliable source of information.

Cross-Border Payments

International trade depends on compliance and secure transactions. Connected banking gives open finance a global reach by enabling escrow-backed settlements and real-time payment verification.

The Role of APIs in Connected Banking

Application Programming Interfaces (APIs) form the backbone of connected banking. They enable financial institutions and third-party providers to communicate in real time.

In an open finance environment, APIs help:

• Share customer-authorized data across platforms

• Enable instant transactions

• Automate compliance reporting

• Support real-time fraud detection

APIs are not just a technical tool; they are essential for making open finance work.

Regulatory Framework and Compliance

Open finance is strongly influenced by regulations. In India, the RBI has established rules for digital lending, escrow accounts, and payment aggregation. Globally, regulators in areas like the EU, through initiatives such as PSD2 and others, are shaping how financial data is shared.

Connected banking helps financial entities comply with these regulations. By integrating compliance into workflows, businesses can grow without the risk of penalties or operational challenges.

For more information on compliance and escrow-backed solutions, check out Castler’s escrow services.

The Future of Connected Banking in Open Finance

The future of open finance relies on stronger collaboration. Financial institutions will transition from gatekeepers to enablers. Connected banking will:

• Promote interoperability between banks and fintechs

• Support AI-driven credit scoring and financial advice

• Enable programmable money flows in areas like real estate and gaming

• Make digital ecosystems more resilient to fraud

This indicates that the success of open finance will depend on the strength of its connected banking framework.

How Businesses Can Prepare

If you’re developing financial products or platforms, preparing for open finance means investing in connected banking solutions now. Start by:

• Assessing API capabilities

• Integrating escrow for secure transactions

• Automating compliance and reconciliation

• Ensuring transparency in customer interactions

Businesses that embrace these changes early will build a trust advantage.

Conclusion

Connected banking is not optional anymore. It is the foundation of the open finance ecosystems taking shape across various industries. From lending to supply chain finance, insurance to wealth management, the trust layer that enables open finance is connected banking.

At Castler, we assist businesses in integrating escrow-backed connected banking solutions that promote transparency, compliance, and efficiency. Whether you’re creating a fintech product or managing large transactions, our solutions will ensure you are ready for the future.

Interested in learning how connected banking can benefit your business in the open finance era? Explore Castler’s solutions today.