Open Finance is here to stay

This year, open banking in the UK celebrated its sixth birthday and reached the milestone of 10 million customers. In today’s world of instant and cross-border payments, the era
of Open Finance has well and truly arrived.

Customer demands are changing, and data is becoming increasingly vital for financial institutions. Open Finance allows banks to address these trends by creating a thriving financial ecosystem, by widening the access to banking services and by putting the
consumer back at the centre of financial services.

The industry agrees; according to
Finastra research, 87% of 900+ senior banking executives surveyed believe that open finance is positively impacting the industry and making it more collaborative.

Finextra spoke to Finastra’s CEO, Simon Paris, to discuss the current state of Open Finance, the impact it has on customers and financial institutions, and what the future holds for organisations with an open approach.

The ecosystem of Open Finance

In order to understand the progress and impact of Open Finance, it’s first worthy to note the difference between open banking and Open Finance. While both concepts are built on data sharing models, open banking, as the name suggests, focuses primarily on
banking services. In the real-world, this means that technology (in this case APIs) that allow third-party access to banking data to streamline the customer journey. Apple Pay or Klarna are great examples of this.

Open Finance goes a step further and integrates the full financial ecosystem into this concept – think mortgages, savings, pensions, or consumer credit.

For example, if a customer is looking to buy a house, this means a plethora of steps and research for the buyer – from researching average house prices in the area and finding the right mortgage to moving house and researching utility providers. The idea
of Open Finance is to streamline this entire process for the customer – where their financial institution will not only be able to offer the customer the right mortgage (even if it’s not their own product) but also help them to optimise their utility bills
and support with other steps that involve financial services.

The ecosystem Open Finance fosters is one that puts the customer back at the heart of financial services. Paris highlights that the idea is for financial institutions to move away from solely manufacturing and offering their own products to also think about
distribution.

“As a bank, I might manufacture fantastic mortgages. However, it might not be the right one for my customer. But if I’m also a distribution channel, and because they’re my customer, I’m going to distribute another lender’s mortgage that’s better for them
than mine. I still make money, but I’m distributing somebody else’s product,” he explains.

“That’s the context of Open Finance. When we say finance is open, it is putting the business, the individual or the community back at the centre of the financial…