The pandemic turbo-charged digital transformation. Nowhere has this been more evident than it has been in financial services where we’ve seen a huge uptake in open banking adoption. So much so, it’s predicted that by 2024 the number of open banking users worldwide will reach 63.8 million.
While we have seen global developments, this is only the beginning. There is so much scope for disruption across the board and we’re on the cusp of an open finance revolution.
The revolution is coming
Open finance will give consumers complete control over their financial data and help millions of people make better habits when it comes to money and savings.
It really will create true financial inclusion for all.
In the near future, third party providers (TPPs), with their customers’ consent, will be able to gain access to mortgage, investment, insurance, savings, and pension data. With this insight, innovative companies - many of which don’t even exist yet - will provide tailored financial products that suit individual circumstances and needs. With such a wide pool of information about their customers’ financial lives, there will be an abundance of personalised services and products; which will act as a catalyst for innovation in the market, encouraging players to digitally transform to remain competitive and attract customers.
Coalitions will win the open finance battle
While we in the UK are one of the leaders in the open finance pack, there’s so much we can learn from others around the globe. Ultimately to help the revolution on its way, we need a centralised approach to open finance. Without frameworks or attractive commercial incentives in place, it’s unlikely the ecosystem will deliver open finance in a timely manner. We need a stronger sense of urgency.
Regulators will play a vital role. We only have to look across the pond to see how powerful they will be in making open finance a reality. President Joe Biden issued a number of consumer-friendly executive orders back in July that will pay real dividends for ensuring the US has a smooth transition to first open banking, and then open finance.
We should also be looking to Australia and Canada for inspiration and learnings. Australia’s Consumer Data Right provides Australians with the right to access all of their financial, utility and telecoms data. While the open-by-default approach took longer to implement than expected, the country now has a solid roadmap for fast-tracking open finance across the board. In Canada, they have a similar plan of action, with a start date of 2023 already in place for their open banking roll-out.
Back on home soil, the Department for Business, Energy and Industrial Strategy (BEIS) has promised to legislate that the industry be involved in Smart Data initiatives, including open finance. Additionally the Kalifa Review, commissioned by the Treasury, acknowledged the importance of open finance in determining the future of the fintech sector in the UK. The proposed alliance between industry and government will be absolutely necessary to deliver it. As the main regulator for most of the firms that would deliver this initiative, the FCA must take point as the main driving force. Not only does it have the expertise but also the powers to implement, supervise and enforce legislative requirements on the ecosystem.
The next step to global transformation
The next steps in the global open finance journey need to be based around a centralised, top-down approach. While we have seen good developments from regulators and industry bodies, this approach must come from a centralised industry figure in each country. Only then will companies be able to evolve from open banking, digitally transform and win the battle for open finance.