The Journey from Open Banking to Open Finance
mmob examine the differences between Open Banking and Open Finance and how one is progressing into the other.
Open Banking has been a buzzword around financial services for the past few years. Now its older, more advanced sibling Open Finance is emerging and promises innovative changes for financial services.
What are Open Banking and Open Finance trying to do?
The objectives of Open Banking and Open Finance are predominantly the same and can be divided into three categories.
- Innovation — The goal is to introduce new financial products that previously didn’t exist. Part of this comes from allowing technology players to enter the market and utilise data to create new innovative offers.
- Competition — The aim is to open the market up to new entrants and reduce the barriers that exist around offering financial services. Ultimately, increased competition leads to market efficiencies which drive the cost of financial services down.
- Transparency — The goal is to make sure that all the opaque fees and pricing driving financial products today are transparently revealed. This will enable products to be easily and fairly compared, contrasted, and even switched from one institution to another.
What capabilities do Open Banking and Open Finance provide?
The emergence of Open Banking has seen both fintechs and incumbents directly respond. Rapid innovation within the sector has led to the emergence of new products and features, looking to drive adoption and engagement. Today, feature announcements and product launches are commonplace, with the financial press documenting the initiatives of companies looking to leverage the capabilities provided by Open Banking. There are many opportunities presented by Open Banking and Open Finance which can be summarised as transactional data, payments innovation, third-party innovation ecosystem, and identity management.
Whilst the adoption of Open Banking has occurred, these capabilities alone have not yet contributed to achieving mass-market adoption. Going forward, we welcome the emergence of new initiatives across Open Banking and Open Finance, built around “compelling events”, where the perceived value exchange for the customer is far greater, increasing the propensity for the user to engage.
Evolution from Open Banking and Open Finance
Whilst user adoption for Open Banking and Open Finance continues to grow, it is noted that Open Banking specifically is limited in its scope. By only focusing on payment account data, the full potential to expose insights is not realised as it largely only streamlines what users are doing already. In a similar vein, a lack of consistency in data between providers can make analysing data problematic.
In advocating the evolution of Open Banking to Open Finance, the FCA has determined several areas whereby innovation within Open Finance would serve areas currently not being fulfilled by Open Banking. These are defined as personal financial management dashboards, automating switching and renewals, new advice and financial support services, and more accurate creditworthiness assessments.
Why is Open Finance better than Open Banking?
Open Finance addresses the limitations of Open Banking through its ability to do more. Rather than having a narrow perspective of their finances, Open Finance provides the user with the full picture that in turn offers more opportunities for product and service innovation. The scope of Open Finance is ambitious, such as creating financial dashboards for the user that provide access and actions to improve financial health, which is far beyond the scope of Open Banking.
As a company driving the Open Finance agenda, mmob understands the vast benefits offered by Open Finance for financial providers, fintechs and users. Through mmob’s Intelligent Partnership Infrastructure, partners are able to deploy third-party products to their users, using secure data-sharing API technology to harness the power of Open Finance.
Interested in reading more? Download the full paper here.