What can the industry do to lay the foundations for Open Finance?
Open Finance is being embraced wholeheartedly by many areas of the industry, and the noise surrounding the concept will only increase as time goes on.
But we’ve seen from Open Banking that change is not immediate, even where driven by regulatory deadlines.
“I think it’s going to be a slow burn. First, you’ve got to regulate. Secondly you need common interoperability standards, thirdly you need to look at who has the ability to share data.” – Rob Haslingden, Head of Digital Propositions at Experian
There are many stars that need to align on the path to a truly open financial system – however there are five key foundations to Open Finance that have been raised time and time again during our conversations with the industry.
1. Define a consistent approach to contextualised data sharing
In short, a comprehensive, standardised and universal approach to digital identity would breathe life into the concept of Open Finance.
Whether through industry collaboration alone, government cooperation, or a regulatory impetus, financial services needs a consistent approach to authenticating an individual or business and managing consent to share data between parties.
PSD2 has laid some foundations by creating regulated entities and a consistent standard of Strong Customer Authentication (SCA). Organisations like Okay are creating fully compliant SCA solutions to secure any transaction from a multitude of threats.
But to truly enable Open Finance, this can’t be limited to traditional banking entities.
As James Varga, CEO of DirectID puts it, “Identity needs to transcend to become a utility, become completely ubiquitous and truly empower consumers.”
An identity solution that allows data to be shared across the entirety of financial services is the answer, and a step in the right direction for Digital Identity more generally. TISA is developing a Digital ID scheme for financial services working closely with the government, the regulator and organisations across the industry to test and develop the technical and consumer approach that will make a single, reusable, secure ID in the UK a reality.
“Build open data around banking, build open data around finance, and then you build open data everywhere, and then eventually you have a digital ID in place and great services, just like we’ve seen in the Nordics.” – Fabien Ignaccolo. CEO at Okay
2. Focus on the value exchange to drive awareness and consumer education
A perceived failure of Open Banking is the lack of consumer awareness. Open Finance needn’t be concerned by this.
The focus should always be on creating a positive exchange of value between parties.
An end consumer does not need to know that Open Finance exists as a concept. They only need to know that they have the opportunity to use a convenient, digital solution that makes their life easier, in one way or another. The mechanics are, and should always be, irrelevant.
As Richard Hayes, the CEO of Mojo Mortgages stated “Consume-ability is just as important as the value it delivers” – if the product or service can not easily be consumed, then no matter the value it will deliver, they won’t use it.
Furthermore, a focus on customer value, rather than simply product functionality, will help the industry to create fairer, more suitable, and more beneficial solutions.
“We shouldn’t talk in terms of Open Banking or Open Finance, we should talk in terms of benefits to users.” – Mark Hartley, Co-Founder of Bankifi
3. Embrace further regulation as an opportunity and business enabler
Initially, many incumbent organisations saw the CMA Remedies and PSD2 regulatory directives as a threat. This is understandable, much of the driver behind the initiatives was to increase competition in the UK market.
However, it’s safe to say that the majority of participants in the industry can now view Open Banking as a great opportunity to improve customer experience, create organisational efficiencies and develop new products.
The same, therefore, should be said of Open Finance. Regulation is inevitable. Pensions are currently being held closest to the regulatory flame, but wider investment products, mortgages and insurance cannot be too far behind.
Organisations required to comply with these regulations should view them solely as an opportunity to improve the business, the market and the industry as a whole.
This too, should foster an environment of collaboration between the industry and regulators, which will ultimately lead to smoother implementations.
“Open Finance has to be mandated, unfortunately we can’t leave it to the industry.” – Matt Parish, Product Manager at Truelayer
4. Appreciate that there is a compelling business case for change
The Open Banking, Open Finance and Open Data initiatives may breed competition, but, when framed correctly, they can result in a positive scenario where every participant benefits.
The customer, of course, tends to be the main beneficiary of change, seeing more inclusive product choices, tools that improve financial wellbeing, and dramatically improved experiences in all sectors.
New entrants, traditionally seen as threats, can be viewed as an opportunity to access capabilities that the organisation doesn’t otherwise have. Open Banking created the fertile ground in which collaborations have begun to grow; Open Finance will truly allow them to thrive.
This is because Open Finance will be of value to organisations as a whole. A shift in emphasis towards improving operational efficiency and reducing cost will certainly create a compelling case for change in even the most sceptical organisation.
“Open Finance can help product providers reduce operating cost, increase efficiency and de-risk the business as well.” – Vaughan Jenkins Director of Business Development at Moneyhub
5. View digitisation as a step on the path to Open Finance
Digital capabilities have long since been seen as an enabler for organisations; they will certainly enable Open Finance.
To create exceptional customer experiences, enhance product offerings and improve operational efficiency, organisations must embrace digital.
Some embarked on this journey long ago, and many recent entrants to the market know nothing but digital. But for many smaller providers the concept is seen as quite alien, quite lengthy and potentially quite costly.
It’s important, therefore, not to lose sight of the business case. As well as the aforementioned benefits of digital alone, by making committed steps in the direction of Open Finance firms can distribute more suitable, more inclusive financial products that improve the wellbeing of your customers, at a lower cost to the business.
Overwhelmingly, people believed that Open Finance can be win – win – win. Customers, incumbents and new entrants to the market can all benefit.