One Small Step: How New US Open Banking Regulations Could Signal a New Era for Startup Finance

Jeff Seibert

Published December 21, 2024

What exactly did the CFPB announce?

On October 22, 2024, the CFPB released new regulations that break financial institutions’ stranglehold on customer data, forcing them to adopt more modern, consumer-first Open Banking practices.

The most important of these changes is a move towards no-fee mandatory data sharing. This change means American financial institutions will have to give consumers and their authorized third parties free access to their own financial data, including their transaction history, account numbers, and more.

Other new regulations announced include:

• Third-party authorization rules: Consumers can give third parties informed consent to access their data.
• Privacy protections: Data can only be used for the specific purposes authorized by the consumer. Unauthorized data collection for other uses, such as targeted advertising, is prohibited.
• Deletion and revocation rights: Consumers can revoke access at any time, and deletion of shared data will be the default upon revocation unless reauthorization is given.
• Right to transfer: Consumers will be able to request that their financial data be transferred to another bank or financial institution if they choose to switch service providers.
• Ability to pay-by-bank: Give consumers the ability to share payment information directly so they can securely make payments from their bank account.

These changes will start to come into effect in April 2026 for large institutions and will continue to be phased in throughout the end of the decade for all but a few small banks and credit unions.

What do these Open Banking regulations mean for your startup?

At the moment, nothing.

These regulations currently only affect personal banking with no impact on business accounts.

However, this announcement may still be good news for business owners and founders for two reasons:

1. It shows that Open Banking is catching on in the US and that regulations affecting business banking could be on the way soon.
2. Banks may choose to adopt Open Banking for businesses on their own, so they aren’t operating different systems for personal and business banking.

In either case, Open Banking is likely to influence how businesses bank — which is exciting news for startup founders.

Why business banking needs to change

Currently, US businesses are paying a steep cost for poor service. Major financial institutions enjoy a monopoly on your financial data and have no incentive to provide a better experience.

In fact, most do the opposite, walling off their product, avoiding API platform development, and making it difficult for businesses to access their data beyond the bank’s own systems.

Because businesses cannot share access to this data in a secure way, they’re forced to either use insecure practices like screen scraping or to manually jump between banking portals, accounting software, and payroll systems, re-entering data multiple times.

This is not just an insecure, error-prone way to handle data — it’s also outrageously inefficient and costly.

For instance, American businesses could save some of the billions they spend on bookkeeping and payroll each year. This is money that could be invested elsewhere but is instead used to do what could be done through open data sharing, machine learning, and AI.

Finally, the true cost of our closed banking system is more than just the time and money spent on accessing your financial information. It’s the lost potential of everything that could be gained with Open Banking — from streamlined operations to more strategic financial insights.

Why you should be excited about Open Banking

Open Banking could save your business hundreds of hours and thousands of dollars each month. Why? Innovation and automation.

In the EU, the UK, and Australia, where Open Banking is already mandated by law, there’s been an explosion in fintech growth. According to the European Central Bank, this growth “benefits FinTech customers by offering them a wider range of options and greater diversification of financial products and services, as well as lowering the costs associated with financial transactions and services.”

New Open Banking laws in the US would lead to the same result — more competition, better products, and lower costs.

Imagine how much you could do once you’re able to integrate your financial data with the rest of your fintech stack. You could:

• Automate payments and invoices so your systems instantly send invoices and process payments, eliminating manual follow-ups and reducing overdue receivables.
• Accelerate loan approvals with instant data-sharing capabilities.
• Get real-time insights into your cash flow as your payroll, billing, and accounting platforms all seamlessly integrate and share data.
• Manage subscriptions automatically with alerts and pre-set rules, ensuring all subscriptions are handled on time without manual intervention.

In short, Open Banking will empower businesses by eliminating unnecessary friction and providing better visibility into their finances. With data flowing freely and securely between financial institutions and your business tools, you can focus more on growth and less on administrative tasks.

Plus, with Open Banking in place, so much more can be done in adjacent fields like accounting, where access to open data could revolutionize business finances.

Bringing the benefits of Open Banking to the world of accounting

Accounting in America today is far more about logging into financial systems and aggregating data than preparing financials and advising on insights.

And this is a shame because accounting is so much more than just adding up numbers. A great accountant is your financial advisor, someone armed with insights that will make your startup more efficient and better prepared for the future.

However, before you can get to insights, you need the data — and as we’ve already discussed, that in itself is a full-time job. In larger startups, it might even account for multiple full-time jobs as you are forced to employ teams of data analysts just to get all of your data points in a row.

So, what options are there for startups looking to get a jump start on Open Banking-style fintech stacks while we wait for the government to catch up?

At Digits, we decided to start Digits Connect. Announced in 2023, Digits Connect is an open API platform that will allow you to securely share your accounting data with third parties. Although our API is still in development, we’re proud to announce that we’ve made significant progress in the last year.

Here is our current road map to Open Accounting:

Stage 1: Plaid as the first connector

Plaid is a financial services company that has been at the forefront of Open Banking in North America. Their Open Finance project aims to help connect financial institutions and third-party apps through secure APIs.

We chose to partner with Plaid because it:

• Helps us connect with financial institutions in the US and abroad
• Believes in and supports the Open Banking movement in North America
• Offers great data coverage, internationally and domestically, with minimal reliance on screen scraping
• Includes powerful categorization tools for financial transactions

Plaid is not perfect. It doesn’t work with all institutions, so a lot of manual data input is still required. However, in a world where real Open Banking legislation has not yet passed, it’s a great step forward for everyone.

Stage 2: Building native connectors

Our next step is to develop native connectors between Digits and financial institutions that align with the Open Banking philosophy.

These connectors will enable seamless, secure sharing of accounting data between the Digits platform and other fintech tools through a robust API. This integration will empower startups to work with what we call our “preferred stack,” a group of tools that are designed to share data and work better together.

This preferred stack will allow startups to build their tech stack, favoring tools that are built with open data in mind. Instead of being held hostage by banks that only want to upsell poorly built products, you can choose platforms that share data and empower third-party solutions to create a better end product for consumers.

While we’re not quite ready to announce our partners, we’re thrilled to share that testing is nearly complete for our first three connectors. Stay tuned for exciting updates soon!

Stage 3: Open Accounting through an open API

The final stage in our roadmap is the culmination of our vision — Open Accounting, a comprehensive API platform designed to revolutionize how businesses manage and share their financial data.

Open Accounting will connect more than just banking data. It will encompass payroll systems, payment processors, employee expense platforms, and other critical financial services so all of your accounting data is working together to create a comprehensive view of your finances.

Open Accounting ensures that businesses, not their service providers, have control over their data and can use it to gain an edge in their industries. This autonomy allows startups to:

• Build better financial strategies
• Automate bookkeeping tasks
• Gain real-time insights that drive decision-making
• Streamline financial processes
• Reduce manual entry

At Digits, we are committed to leading the charge toward an open financial future. Our Open Accounting API will set the stage for a new standard where startups no longer rely solely on cumbersome, isolated systems but instead harness the power of an open, integrated financial tech stack.

Your financial data should be yours to use

In a world of digital convenience powered by AI and machine learning, why are so many startups reliant on outdated spreadsheets, manual data entry, and slow accounting methods?

Modern startups deserve modern accounting practices that can offer them the real-time insights they need to thrive. And they need it sooner rather than later.

So, although this Open Banking announcement is encouraging news, we here at Digits are not content with just waiting for it to become a reality for businesses in North America.

We will continue to push forward with our plans to modernize accounting our own way. Forging partnerships, educating startups, and releasing features that empower businesses with access to their own financial data.

Already, Digits can help startups by:

• Giving you live insights into your finances
• Creating professional and interactive reports
• Providing an automated bill pay system powered by AI
• Categorizing transactions for automated bookkeeping

If you are interested in learning more about how Open Banking can empower your startup, please book a call with us. We can explore how a modern, automated accounting system can be the x-factor you need to impress investors, save you time and money, and find the insights your company will need to grow.