Open banking becomes open finance
Kevin Floyd, Product Owner, Open Banking Channel, Lloyds
Q.
As open banking moves to open finance, what are the greatest opportunities it offers? What needs to be done to realise them?
Open finance offers a number of opportunities:
- Financial inclusion – especially for underserved communities or individuals by making it easier to access a range of financial services such as lending, payments and insurance.
- Lower costs and fees – by making financial services more accessible, open finance can help to lower costs associated with transactions to the end consumer through innovation and competition.
- Greater choice – promotion of competition on an expanded set of products will help the market drive innovative solutions.
- Security and transparency – making information more readily available could help reduce fraud and make it easier for consumers to make informed decisions.
To realise these benefits, there is a need for competitive standardisation, i.e., relevant API standards need to be developed to ensure that open finance is truly interoperable, but exploitation and commercialisation left to the market. Data providers need to be incentivised to participate and work with a range of proposition providers.
Ghela Boskovich, Head of Europe, Financial Data and Technology Association
Q.
As open banking moves to open finance, what changes will we see in the data space?
“We won’t see much change in the types of data being shared in a formal open model in 2023, as the regulatory framework required to expand open finance access has yet to be established; delivery of such a model takes considerable time.
However, the demand for services that help customers better manage money in a recession means service providers will want access to more than just payment data.
Savings and lending data will become increasingly important for these services; given the market won’t want to wait for regulators to formally establish an API-first open finance framework, we may also see an uptick in direct access for non-payment data.
The area of most change in data access will be consent management. While the model may not see material change this year, the thinking about how data is accessed will evolve considerably. The current model may work for a few connected services under open banking, but it is not fit for purpose when the number of connections grows significantly. We’ll see how data is accessed change before we see changes in what data is accessed next year.”
Nilixa Devlukia, Chair, Open Finance Association (OFA)
Q.
As open banking moves to open finance, what needs to be done to realise its potential?
“The OFA is made up of Third Party Providers (TPPs) that see the benefits that open banking brings to consumers and businesses, for example, cost savings, money management, efficiency, and user experience.
But open banking is unfinished, covering only a sub-set of the accounts that people across the UK use each day. It excludes savings accounts, investments, loans, pensions, mortgages.
Open finance is about the opportunities and value for consumers and businesses of obtaining holistic control and visibility of their financial lives. It’s about putting consumers and businesses in control of all their financial data and the functionality for TPPs to unlock this value, empowering the user.
To achieve this vision, we need:
- An independent successor to the OBIE that has the mandate and powers to oversee the implementation and maintenance of open finance.
- Appropriate legislation and regulation which will allow the sector to build on open banking and expand to open finance.
- An API-only approach to ensure well-functioning API access to data and supporting payments, and to maintaining high levels of trust in the ecosystem
At the OFA, our sights are set firmly on these core issues and the legislative mandate to support them and go further to smart data.”
