Financial wellbeing, financial inclusion, female finance are hot topics in fintech these days. At Holland Fintech, we feel this is proof of a bigger trend towards the humanisation of finance.
Interestingly enough, the humanisation of finance is driven by new (data-driven) technology (IoT, AI, and cloud) and the ever-increasing digitalisation of our society and economy. On the one hand, people expect seamless, easy to use, and highly personalised digital solutions that appeal to their emotions and help in life decisions. On the other hand, they also get lost in translation because of the high pace of technological and digital change.
Supported by regulation (PSD2, GDPR), Open Banking has laid the foundation for the financial industry to slowly but surely open to new players who use these technologies to put the needs of end-users at the centre of their business models, value propositions and customer interactions. However, to empower all people with personalised financial services throughout their lives, openness beyond the scope of PSD2 is required. Hence, Open Finance is the next logical step.
Put the human behind the customer first to create new value
Humanisation can be defined as the process of making something less unpleasant and more suitable for people (Cambridge Dictionary). Something the financial industry lost sight of over the years due to low innovation levels, product-centric strategies, challenges in fixing legacy systems and increased regulatory pressure.
As a result, most fintech players have been dedicated to putting the customer first and improving their user experiences or helping financial service providers automate complex processes and bring much-needed innovation and efficiencies.
However, people still struggle to keep track of their financial position and oversee the impact of their financial (non) decisions on their circumstances, due to the complex nature of financial products in general, increased fragmentation of the financial industry and difficulties in getting access to their data.
And even though Open Banking has improved transparency, contributed to customers being more literate about their housekeeping book and the simplification of payment journeys, more is needed.
Access to financial data beyond PSD2 is required to help people understand whether they are on track, safe from financial pitfalls and able to live their lives the best way possible. This is what finance should strive for: not just put customers first, but the humans behind those customers with all their emotions, ambitions, and dreams. And it is resonating, as we see more and more fintech companies directing their resources to develop human-centric value propositions on the promise of Open Finance.
The promise of Open Finance: not without challenges
Although Open Finance presents itself with great promises, some potential drawbacks need to be considered. As mentioned above, to understand the financial needs of the human behind the customer, opening up a wider range of financial data is essential. With Open Finance, TPPs (third party providers) get access to other data sources, like savings, insurances, investments, and pensions enabling them to solve this core problem and deliver digital financial solutions people are really in need of.
However, to unlock this data in the required quality and digital format, the slow pace of digital transformation and lack of interoperability (APIs) within the financial industry remain huge challenges. The regulatory approach of PSD2 has created urgency, but also demonstrated that without a commercial incentive, banks suffice with ‘good enough’ APIs instead of providing the high-quality APIs that are required. As a result, APIs are often experienced as not reliable, undermining the full value potential of Open Banking.
Having poor functioning APIs in place also impacts user adoption- and conversion ratios due to potential disruptions in financial services offered to the end-user. A recent study from Monotype & CITE Research based on a sample of 1000 respondents, indicated that 34% of consumers would refrain from doing business with a financial organisation that offers a poor digital experience. Ample industry initiatives to standardise API requirements have proven to be highly complex and have not been able to make a significant difference yet.
This problem will exponentially amplify in an Open Finance context as other financial institutions, some even with lower digitalisation levels, will need to open up and transform. So, taking some lessons learned, regulating bodies might need to consider how to take steps in providing better incentives to financial institutions in developing obstacle-free high-quality APIs. An interesting step to taking away these obstacles is the recently published report on the SEPA API Access Scheme by the working group of the Euro Retail Payments Group.
Finance should be about the heart
In essence, finance is highly personal, often illogical, and quite emotional to people. However, most of them experience the financial services and products offered as rational, process-driven and complex to manage in a transparent, understandable, and proactive way.
This is not surprising as the financial industry can be characterised as highly complex and regulated to ensure that all players are accountable and take their responsibility in offering sustainable, safe, and secure products and services to people. And rightfully so.
However, with Open Finance the industry has a great opportunity to make finance not just about managing risks or following a process but humanise it and give it a heart again. Regulators and the industry should keep this in mind and share the responsibility to remove obstacles, give the right incentives, and stimulate collaboration across the industry.
Only this way, new value can be created by serving currently unmet needs with personalised financial propositions aimed to include, empower, and put people in control of their finances to support their life goals. And let’s be honest, we can argue whether Open Banking has delivered on its full promise, but by opening to fintech, the payment landscape has changed, and payments have become fun again! Now, who would have thought that 10 years ago?
About Esther Groen
About Holland FinTech
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