Few innovations have made as big an impact as open banking has across the financial ecosystem in recent years. Thanks to the use of open application programming interfaces (APIs), a comprehensive framework that enables third-party developers to build applications has been created. A range of consumer banking details can be shared, with consent, to unlock new services and financial products.
The next step on the open banking journey is a complete open finance framework. This would allow for all consumer banking data to be shared and re-shared with their permission, across a range of financial services. Customers, as well as financial service firms, stand to gain from the next stage in open finance.
In practice, open finance will build on the successes of open banking and give customers even more tailored financial services and see greater competition between companies in the industry. Financial data from pensions, investments and virtually all other forms of financial services would be included in the next step of open finance.
While all stakeholders are likely to gain from the emergence of open finance, marginalised communities and people in vulnerable circumstances are set to benefit a great deal. As some conventional offerings from financial service firms do not work well for large parts of the population, the rise of open finance may present opportunities to fix current market issues.
For example, millions of people in the UK without a bank account find it difficult to access mainstream financial products, as well as accessing basic services like utility services and contract-based mobile phone contracts. If open finance is deployed successfully, with open finance tracking all elements of a person’s financial history, even relatively small past payments could be used to prove the person has paid on time for rent, services and other utilities.
Hyper-personalisation is possible with open finance, enabling financial institutions to offer products that exactly match the often-complex needs of customers. An example of this personalisation in practice is using customer data to provide tailored product offers and support. When logging into internet banking, a financial institution could send an offer of a new loan, if analysis of the customers’ other accounts found several high-rate credit cards being used.
The advent of open finance also has the potential to make life easier in a range of everyday activities. Buying a new television may soon require a customer to simply purchase through a secure online banking application, without having to enter sensitive financial data on a website.
There’s no question that removing friction from the financial services ecosystem is a win-win for both customers and businesses. Even for complex financial purchases, such as buying a house or car, open finance could result in far quicker completion times, lower fees and increased security for customers. Banks, too, will be able to establish new business models and use open finance data to offer customers the best experience possible to increase loyalty.
Are you excited about Open Finance and all the opportunities on the horizon? Join us on the FTT Open Finance stage at the Fintech Talents Festival on the 15 and 15 November at the Brewery in London. There is a lot to debate and discuss, register now to find out more.
Written by Finbarr Toesland, Editorial Contributor, VC Innovations