What is Open Finance?
Open Finance is a term that describes the act of consumers sharing their financial data with third party providers (TPPs). Initially with Open Banking, banks only had to share basic account data, whereas Open Finance means that there will be more indepth data sharing across a broader range of financial products and services.
Open Finance will unlock further innovation in the financial services sector and beyond, by making use of the expanded data set made available through secure Open APIs.
You can watch our Open Finance video below:
Why do we need Open Finance?
The average Briton’s relationship with their bank lasts longer than their marriage - and this inertia can be costly. Banks have always been the one-stop shops for all things finance, but thanks to Open Finance that has changed.
Digital offerings in the financial services sector have changed the way we expect to interact with our banks and manage our finances. Gone are the days where switching is difficult, opening a new account takes weeks or applying for a loan means printing out bank statements.
Open Finance is enabling a new wave of innovative financial services. The access to data made available by open banking connections is more versatile than originally imagined. The majority of sectors can now benefit from access to the API links created during the open banking era, meaning that customers can easily share their financial data. From mortgages and pensions to payment solutions, open finance encapsulates the idea of accessibility and removes barriers for banks, firms and consumers to interact more efficiently.
How could Open Finance change the credit process?
Businesses could benefit from a new, more accessible way of accessing credit. Using open finance could increase efficiency as opposed to the traditional methods used when assessing a businesses loan or credit application. Choosing to use this option means businesses could share their financial data instantly, meaning the lender could:
- Carry out faster eligibility checks.
- Assess affordability and credit worthiness instantly.
- Gain immediate access to historical transaction data.
Businesses would in turn benefit from access to faster funds without laborious checks and waiting times. Open Finance would transform credit assessments and could be automated, ensuring less human error, ultimately improving overall lending efficiency.
Open Finance can solve the inefficiencies in money management.
How many finance apps do you have on your phone?
The odds are, if you have a credit card, more than one bank or accounting software on your phone, then you have a few different apps. Usually, all of the platforms or apps have different login details (you’re lucky if you only ever use face ID). It can be a nightmare, checking balances, transferring funds and managing accounts.
Open banking provides a secure and scalable method, whereby innovative firms can create money management apps that could collate all of your data in one place. Given the consumers consent, financial data from different accounts and financial institutions can be pulled together and be managed within one platform or app.
Open Finance enables the automation of financial management. Innovative firms could create platforms to enable applications to make financial decisions based on consumer information and preferences. A great example of this is moving money to the best interest rate available, maximising the return on savings and the opposite for debt, where moving debt to the lowest interest rate for overdrafts and credit cards could be automated.
Do you check and compare prices for utilities or insurance online?
Today’s online comparison sites play a big role in what financial product customers end up purchasing. The quotes are usually generated by the user going through roughly 4 or 5 pages, typing in the relevant information to that product. Customers are then presented with many different quotes or estimates based on the information they have typed in.
Of course, typing in this information presents various challenges. Fraudulent entries being the most frequent. This may be in an attempt to reduce the cost of the product or service or it could be due to human error. However, comparison sites, pension providers, utility companies, insurers and more can utilise Open Banking data to see the real financial picture, automatically increasing effectiveness and reducing risk. The data made available through open banking could help simplify the process for firms and consumers.
Comparison and switching services could be transformed - making the process painless, much faster and more accurate. Linking customer bank account data to fetch historic utility transactions would inform new offers or rates on relevant products and services. Comparison sites and utility firms could use the data to ensure the best possible price and products for the individual or business in question.
The advancement in the availability of data, made possible by Open Banking and open finance, can change the way in which firms and consumers interact. The benefits for both parties are astounding and stem from the underlying improvement in efficiency that further data accessibility will allow. Firms looking to use this data to improve their products and services will be joining the many innovative firms that have already made waves in their industries.