From Open Banking to Open Finance and Open Data
Open Banking, to many, has so far failed to live up to expectations. The use of Open Banking services is growing, absolutely, but it has been far from a resounding success. Delays, corporate inertia and incomplete use cases mean that there are still gaps in both the provision of account information and the ability to initiate payments via open, robust, fully functioning APIs.
It’s interesting, therefore, that the conversation has turned already to Open Finance. The idea that customers will be able to take control of their data across all areas of financial services so that new, innovative solutions can be created.
But it does make sense. An individual’s financial life doesn’t start and end with their current account. Open Banking, even when fully implemented, provides only a one-dimensional view of a customer’s finances. Any solutions which seek to provide useful services to customers need to consider the entire financial landscape. Current accounts, savings, investments, mortgages, credit, pensions and insurance, for both individuals and businesses.
Open Data, the further, richer extension of this considers how consumer data can be used to develop new solutions, products and services that cut across industries. From financial services to energy, telecoms, health, and more.
It’s fair to say that financial services is paving the way for a model of Open Data, and as such there’s a lot of noise in the market today about Open Finance.
Paving the way from Open Banking to Open Finance
The number of individuals and small businesses that have used Open Banking products or services has more than doubled in 2020.
Over 2 million users have now actively engaged with banking solutions that present an enhanced level of account information, or initiate payments, using Open Banking APIs. This is heralded as a success story, and for the most part it should be – 2 million end users are benefiting from this innovation across banking. However, this still only represents around 4% of the consumer banking population of the UK. Furthermore, research conducted by Woodhurst in September 2020 showed that 38% of people still aren’t aware of Open Banking as a concept.
This, coupled with the fact that Open Banking can only ever cover a sliver of a consumer’s financial landscape, should be some cause for concern.
But that’s where Open Finance can come in.
We know that customers will use solutions that will be valuable to them. By extending the use of open data beyond traditional payment accounts to include savings, investments, pensions, credit, insurance and mortgages, the potential value to customers is exponentially increased.
And right now, that’s incredibly important because this is a difficult time for people. 41% feel anxious, worried or stressed about their financial situation, with the overwhelming majority becoming more conscious of this situation since the pandemic struck in March 2020.
Open Finance has the power to relieve some of this anxiety, worry and stress. As Rob Haslingden, Head of Digital Propositions for Experian puts it, Open Finance can give financial institutions “a more holistic view of customer wellbeing.” This framing of the opportunity is so important, and one that is heard time and time again. Open Finance puts control back in the hands of the customer, but it also gives organisations the power to make their customers’ financial lives easier and less stressful.
“It’s about eliminating the “hover”. That brief pause before clicking on your banking app, for a fear of what you might see.” – Sam Oakley, Head of Marketing at Bud
But to benefit, customers have to engage.
We found that only half of people would be comfortable sharing data between banks or providers of financial products, whilst less than 40% of people would be comfortable sharing data with a non-bank third party.
Trust is essential and it makes you wonder whether the word “Open” should ever have been associated with these initiatives. As Amy Kroviak, Co-founder of Open51 says “if I could go back in time, I’d ban the word Open full stop, because Open doesn’t work, it scares consumers.”
“There are a lot of interesting opportunities in providing trust style services in the digital space, rather than just in the physical world… areas such as consents, privacy, guarantees, and safeguarding of digital assets.” – Dan Globerson. Head of Open Banking at NatWest
But balanced keenly alongside the importance of trust, is that of ensuring a positive value exchange. Once customers can see how these products and solutions will help them to manage their finances more effectively, less than 10% state that they would be uncomfortable sharing their data.
“People do share data, when the product is important to them.” – Rachel Booth, Co-founder of Mettle
This is the crux of our report. To truly uncover the potential of Open Finance, we can’t just talk about it in general terms. We can’t just relay the expected benefits back to customers. We need to highlight, with specific detail, the products and solutions that are being developed today, to show how Open Finance can dramatically improve customers’ financial lives.