Banks must be prepared for the innovations that could be brought about through Open Finance and beyond, experts say.
While financial services organisations are still adapting to the requirements of Open Banking regulations, the conversation has already moved beyond Open Banking alone, with the industry now watching how concepts such as Open Finance and Open Economy will develop, and the impact they will have.
Open Finance applies the principles of Open Banking to other industries such as insurers and investment firms rather than just banks, encompassing mortgages, pensions, investments and insurance policies. As with Open Banking, consumers can share their data with third-party providers through open APIs. In other words, Open Finance covers additional aspects of consumers' financial footprint outside of banking alone.
Hans Tesselaar, Executive Director at Banking Industry Architecture Network, a not-for-profit association that works to establish and promote a common architectural framework for enabling banking interoperability, maintains that Open Finance would allow consumers to access a greater range of financial products, allowing for greater innovation:
"The next level of Open Banking would be Open Finance. So, we move a little bit away from current account and payments and we also go into loans and mortgages, and maybe insurance. There is a wider range of products that you are not offering to clients today but you canwhen you embrace Open Finance."
Customer benefits
For consumers, Open Finance could make it easier to switch providers, manage personal finances more effectively and access financial advice. Last year, the UK's Financial Conduct Authority (FCA) published a call for input regarding the development of Open Finance. Responses showed that Open Finance could potentially offer significant benefits to consumers, including increased competition, improved advice, and improved access to a wider and more innovative range of financial products and services.
This viewpoint is backed up by Jacquelyn Painter, Senior Manager, Solutions Product Marketing for Financial Services at Okta:
"We're seeing this concept of Open Finance where you're starting to go beyond Open Banking and consumers can get a full view of their insurance information, mortgage applications and so on. Then you're seeing this concept of open everything: Open Economy, Open Data. And that's where it transcends across other industries. Now banks are looking at whether they can partner with other organisations to exchange data and create value for the consumer.
"One use-case is, when a bank partners with a utility company they can share data. Now the bank is able to say, ‘you paid all your bills, here are your transactions, here's what you paid towards your utilities'. This new generation of consumers is very passionate about the environment and sustainability, so now there are these opportunities for banks to provide these better experiences and keep their customers happy. They can say, ‘hey, did you know that you consumed this amount of water' or ‘you used United Airlines, here's your carbon footprint'. There are so many different ways to provide more insights and services and experiences that this new generation of consumers really cares about."
Expectations Vs reality
With organisations still getting to grips with Open Banking, it is too early to say what the full impact of the regulations will be, and whether they will achieve their aims. However, considering the rapid pace at which innovators within the industry move, it is likely that new and exciting products will emerge as a result of Open Finance.
Therefore, it is important that banks and other financial services organisations keep pace with industry developments.
As Painter puts it, "There's a quote out there that says, ‘at some point every company will be a fintech company' and this is absolutely the case. This is why financial institutions need to be able to strategise their long-term plans for how they fit into that picture. If you look at Uber, Amazon, all kinds of organisations out there, they are acting as a bank by paying their employees through their application. They're providing loans or payment plans."
To find out more about the opportunities, challenges and future of Open Banking, read Computing's full report on the topic.
This content is sponsored by Okta
