Regulation  

Get ready for Open Finance

Stephen Walsh

Stephen Walsh

In December 2019, the Financial Conduct Authority called for input to its 2020 Open Finance consultation paper.

The regulator hopes this next ‘step-up’ from Open Banking – a crucial element of PSD2 – will drive change in the financial services sector, producing new business models, products and ways for firms to engage with customers.

When Open Banking (OB) launched in January 2018, it was heralded as a platform to ‘transform’ the way people move and use money.

These new rules for data sharing introduced a safe environment, enabling customers to consent to third-parties accessing their account information or make payments on their behalf. 

The goal was and is to prompt innovation, increase competitiveness and help consumers/businesses better understand and utilise their finances.

When rolled out, Open Finance (OF) will for example, facilitate the development of personal finance management dashboards, consolidating customer data re savings, investments and cash flow.

Customers will also be able to share more information about themselves and receive better/more affordable services. 

From a business perspective, firms can reach new customers and markets and develop new revenue streams; they’ will also be able to increase service line efficiency and flexibility, finding new ways to deliver products and make decisions. 

The benefits are clear, but the same cannot be said for sector confidence in preparing for OB and next-in-line OF.

At a recent PSD2/OB conference in Amsterdam, global insurers and banks voiced concerns over how to maximise the potential of OB, identify the support they need and manage their Application Programming Interfaces (APIs).

Key issues included how to increase exposure of their products and services and how to convince ‘entrenched businesses’ that APIs should feature higher up the strategic agenda (some fail to see the potential of APIs). 

So what is an API and why is it crucial to OB/OF?

An API is like digital glue.

It connects different systems, enabling businesses to: better connect with financial services partner clients and the whole ecosystem, reach new channels, monetize data and services, provide customers with digital and omnichannel experiences, develop platforms for partners, boost innovation and create viable products that reach the market quickly, enhancing the customer experience.

An API is crucial to OB/OF because it moves a business from single/multi-channel customer communications (company, branch, web and app based) to multi-experience ecosystems (IoT, virtual reality, third-party online portals/marketplaces).

Those without this infrastructure will struggle to compete in the ‘open world’.

It also ensures the business adheres to security, performance, governance and access-control requirements, protecting customer data and the provider’s technology. 

API management software specialists, OB technology vendors (producers of more simplified versions) or in-house IT teams are capable of delivering the required APIs. 

OB/OF is about businesses sharing data securely and less sophisticated software could lack the governance/transformation elements, and those relying on in-house solutions could create potential update issues and security exposures.