The FIDA draft proposal, published almost 18 months ago, came as a bombshell in the financial services industry. Even if all players knew what to expect, the scope of the Financial Data Access framework confirms many opportunities and challenges. We know about Open Banking and have heard about Open Insurance and Open Wealth initiatives, but are we entering the era of Open Everything? These 5 Open Finance use cases prove it.
With the users’ permission, credit institutions can already use Open Banking to gather financial information, pulled from payment accounts in real time, and make quicker and more informed creditworthiness decisions.
With any type of account now available with Open Finance – savings, crypto assets, securities, etc. – scores will be more and more accurate and better decisions will be made, eventually benefiting both the users and the lender. Also, it is interesting to note that under FIDA, data users will have the possibility to access data used in firms’ creditworthiness assessments. This will expedite data collection and credit decisions.
Suitability assessments required under regulations (MiFID II and IDD, respectively) are costly and usually not very user-friendly. This step might nevertheless soon no longer be required, at least not exactly in the same way.
Financial institutions acting as data users might indeed leverage FIDA to retrieve data collected by other financial institutions in the context of suitability and appropriateness assessments. Data users will still need to verify data accuracy, but the user experience will hopefully significantly improve, together with the customer knowledge enabling better investment advice (see below). The access to a large set of financial data in the context of FIDA will enable financial institutions to ensure a certain diversification of their customers’ assets and reduce risks for both their customers and themselves.
Account aggregation at its finest to provide users with personalised and data-driven financial guidance: this use case has all the ingredients to flourish in this upcoming Open Finance era.
Both retail and private banks will be able to access a large variety of data, such as savings or securities accounts, and will thus be able to provide tailor-made investment advice to each of their customers, irrespective of their wealth. It could even be combined with robo-advisors or AI-driven platforms to, on the one hand, improve efficiency, and on the other, reduce costs for the investor.
An Investment Advice service could first leverage FIDA APIs to source data from multiple financial institutions. It would include bank account information, investment portfolios, and more! Such a solution could then analyse and offer tailored investment advice, from asset diversification to risk reduction and the overall portfolio’s optimisation.
In the global warming emergency context and with a certain ESG aspect, one can imagine an Open Finance-powered solution that could link spending data to carbon emission tracking.
In this respect, such a solution could track the carbon footprint of the users’ spending or investments and also offer greener alternatives and incentives via environment-friendly products and ESG investments.
We can imagine an Open Finance-based solution that would track all of a user’s or company’s subscriptions, to provide insights, and even negotiate, pause, or cancel services on behalf of the user/company, while automatically adjusting the monthly subscription budget based on these changes or adaptations.
This use case falls into the (personal) finance management category, as we are noticing a growing demand from consumers as well as companies willing to improve their financial wellness and expenses linked to subscriptions. This use case would be particularly relevant when combined with a global analysis of the customer’s wealth and monthly savings.
As you can expect after going through the draft regulation and reading these concrete use cases: the stakeholders will have different roles depending on the solutions described above; they may act as ‘data holders’ or ‘data users’. Players must understand their role in the Open Finance value chain, knowing that staying out of this new world is not an option.
At LUXHUB, we’ve embraced this new era: from a pioneering Open Banking hub with proven expertise in several geographies worldwide, we’re turning into an Open Finance enabler, with all stakeholders leveraging a mutualised, robust, and innovative platform. As a third-party platform, the LUXHUB Open Finance Platform offers a fully operational, official, and FIDA-approved compliance product. Features range from developer portal and data users management to different environments available and security monitoring. So, are you ready for the Open Finance revolution?
This editorial piece was first published in The Paypers' Open Finance Report 2024, the latest comprehensive market overview and analysis focusing on the key players and products within the Open Banking and Open Finance ecosystem. Download the full report to discover more insightful content.
Anne-Sophie Morvan (Chief Commercial Officer, LUXHUB) is passionate about Open Banking and, more broadly, Open Finance. Trained as an IT/data protection lawyer, she is active in several professional bodies and European associations and regularly publishes on related topics.
Alexandre Keilmann (Marketing Manager, LUXHUB) is driven by creativity. His mission is to put LUXHUB at the centre of the Open Finance map by leveraging traditional channels as well as innovative ones.
LUXHUB is a fintech from Luxembourg, born in the wake of PSD2. It has evolved into a leading Open Finance player and a connectivity and mutualisation expert. LUXHUB provides compliance services (PSD2 XS2A, CEDR, CESOP, and Verification of Payee) and solutions revolving around financial data aggregation and payment initiation.
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