Aris Suwanmalee - stock.adobe.co
The financial services industry is already well into its journey to open finance, with organisations in the sector open to collaboration.
Open banking today is seeing customer banking data being shared by the industry through application programming interfaces (APIs), with customer permission, enabling businesses to offer tailored products.
But open finance is the next phase of open banking and will go much further, with finance firms sharing data across more services such as mortgages and loans, via APIs, and offer products and services from external organisations.
A survey of about 800 manager-level executives at finance firms, from IT financial services software supplier Finastra, found that 85% believe open finance is already having a positive effect and making the finance sector more collaborative. Most (80%) believe the sector is open to collaboration.
“In 2018, we declared that the future of finance is open,” said Finastra CEO Simon Paris. “We weren’t just talking about open banking, but true open finance – disrupting and reshaping the foundation of financial services. That future is now, and we can simply say: finance is open.”
In January 2018, UK banks were required to implement the CMA’s open banking regulations. This led to the development of APIs in banking to give consumers more control over their accounts. Through these APIs, third parties and multiple finance firms can use a consumer’s data to recommend the best service, including bank accounts. The end goal was to increase competition in a sector dominated by big financial services companies.
According to recent data from the nine biggest UK banks that had to implement open banking, more than five million Brits are now using open banking services, with payment services the most popular.
Simon Paris, Finastra
But open finance promises to open up more services to consumers. “In the last few years, the industry has seen the unbundling of banking, with institutions offering products procured outside of their organisation, a move to contextual and conscious banking services which meet the customer at the point of need,” the Finastra report stated.
Last month, a group of European fintechs launched the Open Finance Association (OFA) with the goal of further opening up financial data through APIs. Founding members include Volt, Truelayer, Worldpay and Gocardless.
A statement from the OFA said: “Open finance is the next step in the evolution of open banking. By bringing the benefits of open banking to a broader array of financial products, open finance will give consumers and businesses greater control and visibility of their economic lives.”
Nilixa Devlukia, chair of the organisation, added: “Now is the time for industry, policy-makers and regulators to come together and make open finance a reality. Through the promotion of an API-focused agenda in both payments and data, OFA aims to promote a healthy and sustainable fintech ecosystem, in which consumers and businesses all benefit from improved, innovative services.
“I am excited to work with our members, who are true leaders and innovators, and look forward to engaging with stakeholders at all levels to achieve OFA’s vision.”
Read more about open banking
- Nordic consumer investment fintech simplifies customer experience through open banking software from Mastercard-owned Aiia.
- The completion of complex open banking initiatives could still be over a decade away for many companies in the finance sector.
- Open banking is a relatively new concept, having come into effect in Europe only in the past couple of years. So what is the state of play?