Open Finance is the Next Step in Open Banking Journey
In 2014, Open Banking Standards came on to the financial market landscape with a view to provide a better, faster and more accessible financial services marketplace for everyone.
Now, Open Finance is emerging as the next step in the journey of Open Banking. In 2020, the UK’s Financial Conduct Authority (FCA) published a call for input regarding the development of Open Finance. Open Finance would provide more access to a wider range of financial products and services.
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Open Finance will transform the financial experience for customers and businesses and benefit virtually any industry that depends on financial data.
What Did Open Banking Bring to the Financial Landscape?
The core main idea behind Open Banking was to enable data sharing related to payments — which then facilitated Open Banking payments, reduced fraud, supported advanced cash flow management and provided customers with real-time connectivity to their account and transaction data.
APIs also enabled banks to serve customers through the channels that are most convenient to them, like cloud accountancy or mobile apps.
Open Banking helped:
- Foster competition in financial services and create a level playing field.
- Accelerate innovation in financial services.
- Improve customer experience and make financial services more accessible, personalised and comparable.
- Ensure increased levels of security for customers and businesses.
The Advent of Open Finance
Open Finance builds on the paradigms of Open Banking beyond transaction payments data to a broader set of financial products and services, such as mortgages, loans, investments and pensions.
With Open Finance, consented third-party APIs can access customer financial data related to mortgages, savings, pensions, insurance, consumer credit, asset and wealth management and unsecured lending — a person’s entire financial footprint.
The move towards Open Banking has been an overarching theme for long, and it aligns with the global trend toward open data and data portability. Open Finance will enable wider integration across non-financial industries, including sectors like healthcare, retail and government.
For fintech startups, it means that a much bigger set of third parties will compete to establish financial relationships with customers.
FCA’s goal for Open Finance is to improve financial health driven by market innovation and competition, as it helps:
- Gain access to a wider range of financial products/services.
- Take greater control of personal data and finances.
- Be empowered to make better financial decisions by engaging with their financial information.
Open Finance will bring more creativity in fulfilling customer needs by “leveraging new sources of data to offer a more complete picture of customers’ financial life, deeper insights and a more finely tuned product suite.”
Daniel Globerson, head of the bank of APIs at NatWest Group, says,
“When it comes to financial health, having a full picture, in what we might describe as Open Finance, is certainly a big step, and that's an enabler for financial institutions to, again, provide a broader view of what consumers truly need.”
In the future, Open Finance will change the way financial institutions innovate and how they deliver services to their customers.
Globerson says, “The more openness we have, the more opportunities there will be for financial institutions to take a leading position in offering digital services that also build trust, and not just a particular product.”
Sign up for the Oxford Fintech Programme to learn more about Open Finance and how to leverage it to create new innovative financial products that transform the way to serve customers.
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