How can we accelerate Open Finance adoption?

Joe McGrath |

In December 2019 the UK’s financial watchdog asked the industry for feedback on its vision for ‘Open Finance’ which it claims could “transform the way consumers and businesses use financial services.”

The UK has led the way in Open Banking after it was introduced in 2018 to increase innovation and competition within the sector. The Financial Conduct Authority believes the advances being made here could easily extend beyond just banks, improving the ways that consumers and businesses carry out their day-to-day activities.

“Open Finance is, in effect, an extension of Open Banking principles to a wider field of financial services and products. It is a natural and expected progression,” explains Eyal Nachum, co-founder at Brüc + Bond.

“Open Banking has been a tremendous success. It has allowed a whole industry to spring up and provide services in those gaps banks were leaving neglected. Corporate and retail NBFI services are blooming, and customers are the big winners. Open Finance has the potential to take it much further.”

Open Finance applies the same principles of open banking to all the different financial services, including insurance, mortgages and pensions – removing some of the barriers that currently exist between them.

Traditionally these financial services have been siloed, creating friction for the customer. Take a mortgage application as an example. Currently the customer needs to manually access all the various bits of information required, from payslips to different bank accounts etc.

An Open Finance system will enable a much smoother process as all of this information will be readily available to third party providers.

Consumer engagement key

However, the FCA recognises that the success of an Open Finance framework is dependent on the consumers being prepared to engage and be willing to allow third party providers to access their personal and financial data.

Imran Gulamhuseinwala, trustee of The Open Banking Implementation Entity (OBIE), believes the implications of open finance are far reaching, with the potential for vast growth in sectors as varied as pensions, insurance, payments and investments, to name a few.

“No project in line with the scope and reach of open finance has ever been attempted before, and therefore, the potential for innovation as a result of collaboration between incumbents and challengers is unprecedented,” he says.

“Given its importance and primary objective of empowering consumers and small businesses to exercise their basic right to access their data and share it with third parties, it would appear reasonable that open finance be a mandatory requirement for incumbent providers.”

One major benefit of being able to share accurate customer data is that businesses will be able to sell more appropriate products and payment plans to the customer and, as a result, we’ll start seeing more integration of financial services, according to Tim Hooley, FSI chief technologist EMEA at Red Hat.

However, he cautions that this won’t necessarily be plain sailing as these financial services are currently regulated by different bodies and have different industry practices.

He says: “It will likely take some time before we start to see full integration of financial services. What’s needed now is for firms to apply a less rules-driven and more imaginative and innovative mindset towards managing financial transactions.

“There is a huge opportunity for traditional organisations to create new offerings and build stronger, more personalised experiences with customers.”

Legislation needed?

The challenges faced by the financial services industry is whether Open Finance will be mandated by legislation to set out standards such as APIs, client data portability and liability rules for customer loss.

“It is clear that some parts of the industry are only just starting the digital revolution let alone build digital gateways for third parties to share their client data,” warns Steve Tigar, chief executive officer of Money Dashboard.

“For some firms there is little incentive to ‘open’ up to other regulated firms, but others are embracing the opportunity to enhance their clients’ experience by providing a holistic view of their financial wellbeing.”

The FCA’s call for input deadline was March 17, 2020, but this has now been extended to October 1, 2020. The next steps for Open Finance will no doubt being eagerly awaited by consumers and business alike.

For Stefano Vaccino, founder and CEO of Yapily, the implications are significant, none more so than on financial services themselves.

“We cannot even imagine what products and services will be created when consumers have absolute control over their own banking and financial data,” he explains.

“But the true promise of Open Finance lies in consumers being able to get offers for financial services based on what they actually spend – rather than on estimates or giving providers unsecure access to their financials. It will be fascinating to watch open finance become a reality.”

  • This article was updated on 18 March 2020, following the FCA’s announcement that the Open Finance input deadline has been extended. More details are available here.