Open Finance presents major opportunities for financial services

Around 4 out of 10 individuals in the UK feel anxious, worried or stressed about their financial situation. According to a report by Woodhurst, Open Finance has the power to relieve some of this anxiety, worry and stress. 

Open Finance considers how customers will be able to take control of their data and easily execute payments across all areas of financial services so that new, innovative solutions can be created. It is an extension of the open agenda beyond simply Open Banking, to encompass savings, investments, mortgages, credit, pensions and insurance, for both individuals and businesses. 

The number of individuals and small businesses that have used Open Banking products or services 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 and according to the research by Woodhurst, 38% of people still aren’t aware of Open Banking as a concept.

Open Finance

This is where Open Finance comes in. By extending the use of open data beyond traditional payment accounts to an individual’s entire financial landscape, the potential value to customers is exponentially increased. 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. 

If embraced across the market, Open Finance can reduce biases that are inherent across the financial industry, support financial education for all customers, not just the privileged few, and promote financial inclusion.

But to truly uncover the potential of Open Finance, the researchers argue that a number of steps needs to be taken. For starters, “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,” explains Josh Rix, a Director at Woodhurst.

In its report, the authors present an overview of the entire Open Finance landscape today, as well as examples of products and services that are already looking to solve real customer issues.

“The reality is that there is a flourishing ecosystem of innovative companies working alongside established and ever-evolving financial services providers,” says Rix. 

Some companies are tackling the challenge of identity, authentication and consent, seeking to create a seamless way for customers to access their data and perform actions upon it in the most secure way possible. Others are weaving the threads of the industry together by standardising the way in which data is sourced, analysed and distributed – both in response to and pre-empting regulatory guidelines. 

Rix: “And many are using this greater availability of deeply insightful data to create new products and solutions for customers or reshaping those that already exist. With a little direction, a lot of collaboration, and a focused, concerted effort these component parts of the Open Finance ecosystem can come together to drive benefits for all customers.”

As Harry Weber-Brown, Innovation Director of The Investing and Saving Alliance put it, “The optimal way for Open Finance to be delivered is if all organisations who are attempting to try and fix certain parts of the jigsaw puzzle work together.” 

Realising the journey

There are many stars that need to align to create a truly open financial system – Woodhurst identified five key aspects that the industry needs to consider to further lay the foundations of Open Finance: 

Define a consistent approach for contextualised data sharing

In short, a comprehensive, standardised and universal approach to digital identity would breathe life into the concept of Open Finance. 

Focus on the value exchange to drive awareness and consumer education

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. 

Embrace further regulation as an opportunity and a business enabler

Regulation is inevitable. 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.

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. “Open Finance can help product providers reduce operating cost, increase efficiency and de-risk the business as well,” according to Vaughan Jenkins, Director of Business Development at MoneyHub. 

View digitisation as a step on the path to 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. The many smaller providers for whom the concept is seen as quite alien need to consider the wider business case and the great benefits that can be reaped through treading the path of Open Finance. 

“Although it may be a slow burn, the financial services industry is setting the standard for how data can be shared across the entire digital ecosystem in a safe and secure way, to drive significant benefits for established financial providers, new entrants to the market, and consumers alike. It really can be win-win-win,” concludes Rix.

For more information, download Woodhurst’s ‘Uncovering the Potential of Open Finance’ report.