It started with open banking… but what does it really mean? 

Open banking enables customers to share their personal data with other external trusted organisations that can provide innovative apps and services tailored to their individual financial situation. Such applications may be provided by new startups and applications designed to help users save better and spend better. In the UK the initiative is being driven by openbanking.org.uk 

The essence of open banking is to create interfaces and services within banking technology that enable payment services from third-party providers to securely access the individual financial data and transactions held by banks and other financial institutions. 

The EU has been at the forefront of open banking, with a pivotal role played by the revised regulation known as the Payment Services Directive 2 (PSD2). This initiative facilitates and formalises the secure access to customer-permitted bank-held account data. 

Building on the experiences customers and organisations have of open banking, a new initiative has been born which has been coined ‘open finance’; significantly expanding the connected frontier beyond current and savings accounts. Open finance will facilitate further information sharing and allow third-party involvement across various financial sectors and products, whilst adhering to data privacy and consumer protection regulations. 

The future of open finance is just how I imagined finance to be when I was a kid; the reimagined gamification of finance will finally allow me to realise those childhood dreams and Sega Mega Drive my financial life! 

But let me tell you more! 

Open finance aims to enable individuals to take full control of their data held by any number of financial service providers and allow them to see an overview of their full financial situation. Additionally, it will promote creativity in the industry and result in the availability of superior and advanced financial products for customers in the market. 

Making rules safer and more digital-friendly with open finance for consumers will boost responsible innovation across the whole of the European Union's (EU's) financial services sector, including digital start-ups offering powerful value-added financial management services, whilst mitigating potential risks related to investor protection, money laundering and cyber-crime. 

The crux of open finance lies in the efficient and controlled handling of customer data, whilst fostering the creation of new products and services for consumers and companies, by sharing, aggregating and recycling information. Make no mistake, the future of finance is collaborative and digital. 

Customer interaction 

Customers now routinely interact with their banks using mobile technology, smart watches, smart glasses and more! And the pace of change is only set to accelerate! 

Open data or smart data is the key to opening everything! 

The financial sector must implement a scalable approach for forthcoming data-sharing proposals, whilst establishing a sustainable foundation for the continued growth of the open banking community. 

Services that drive real consumer value and solve financial problems can only become a reality with the participation of the entire market, enabled by a transparent, well-governed regulatory system which is commercially viable. 

The open finance ecosystem continues to develop, and its framework must be secure, straightforward, and easy for the public to use - expanding the sharing of financial data, such as insurance, pensions, mortgages, assets, credit agencies data and investments. 

Imagine a world where you can get personalised automated insurance onboarding based on your current account history and mortgage data, and if that could create packages for you based on a reduction of risk on your credit history - thereby saving you money! 

The future of open finance 

Imagine a world where your finances are fully automated, where finance will disappear into the background and AI will run your financial life... always giving you the best products and options to make your money work as efficiently for you as possible! 

Open finance creates the possibility of developing new products and services which were formerly inconceivable. Personalised financial advice, for example, might now be possible based on a customer's entire economic history rather than just their bank's records. Additionally, risk evaluation could be more precise, and decisions made quicker, fairer, and open to all. 

One of the primary motivations for the move to open finance is to fulfil the promises created by open banking: the seamless movement through the entire financial system free from obstruction. However, this has, at times, been hampered by having to depart from fully automated processes and to resort to requesting manual data.  

Open finance promises to fill this void and will enable us to deliver efficient services which save time, add value, and produce better results for both business owners and their customers. With open banking, we've all been spoiled by the free-to-access APIs provided at vast expense by the big banks. Open finance is revolutionising the financial services landscape, creating a more context-driven and conscious banking system that caters to customer needs better.  

Companies have an increased appetite for creating positive change whilst achieving success. Retail banking can leverage this shift, but many other industries also stand to gain from the benefits of open finance. Banks have played a prominent role in the portfolio of assets they oversee for individuals or businesses since time immemorial. The new data-centric era provides another opportunity for banks to be part of something larger, although they must leverage FinTech to fully capitalise on it. 

Financial institutions should collaborate with FinTech's and leverage new agile technologies to take advantage of the potential that open finance offers. By doing so, they will understand how best to exploit these cutting-edge tools and monetise APIs to stay competitive in the digital age. 

Finance is growing up, but it's a long journey and one that I have personally also struggled with!