Marie Walker, the co-founder of Open Future World, shines the spotlight on Open Finance as global initiatives go back to basics, Open Banking gains momentum, and data rights remain a hot topic.
The last 12 months have seen the Open Banking movement continuing to spread to new countries. Perhaps as many as 80 countries now have some form of Open Banking regulation in place or under development.
In Latin America, Brazil’s rapidly evolving Open Finance market (and Mexico’s rather slower one) have now been joined by Colombia, with Chile set to follow. In the Middle East, early movers Bahrain and the United Arab Emirates are being joined by Israel and regional heavyweight Saudi Arabia. New Zealand is preparing to introduce its own version of neighbouring Australia’s Consumer Data Right.
The introduction of the Account Aggregator framework signals India’s introduction to the world of Open Banking, opening up over a billion bank accounts. In North America, both the US and Canada – which to date have pursued more market-led forms of Open Finance – now seem to be taking serious moves towards introducing a regulatory mandate.
But with that global spread, things risk becoming a little confusing. What is the difference between ‘Open Banking’ and ‘Open Finance’? Is regulation an essential step towards opening up? Where and how do the technical aspects of Open Finance – open architectures and APIs – fit in? And what is the bigger picture?
One question, at least, is relatively simple to address. ‘Open Banking’ is now generally taken to refer to the opening up of payment accounts – along the lines of the Open Banking regimes introduced by the UK’s Open Banking Implementation Entity and Europe’s PSD2 regulatory framework. ‘Open Finance’ is taken to refer to something wider – as reflected by Brazil’s decision to rename its own initiative as its full scope emerged.
As far as regulation is concerned, the argument is more nuanced. While some see North America as a laggard in Open Banking, others see a market-led approach that has sparked a wider range of Open Finance innovations. Banks in Europe and other regulated markets have sometimes seemed to focus on meeting the minimal payment account compliance requirements. By contrast, US fintechs offer a more varied range of data APIs for different use cases.
In terms of technology, the role of APIs as a superior alternative to screen scraping is widely accepted, as is the need for banks to move towards more flexible infrastructure. But while this is undoubtedly a key ingredient in opening up, technology alone doesn’t really define what Open Finance is about.
As the world of Open Finance matures, these apparent confusions and contradictions are beginning to resolve themselves.
There are lessons to be learned – and arguments to be had – about different markets’ approaches and which business models will prove most successful. But at the heart of Open Finance is the concept of giving consumers power over their own data and the potential that has. Australia expresses this idea well with the term ‘Consumer Data Right’.
That concept of a Consumer Data Right naturally lends itself to extending the idea of Open Banking to Open Finance – and indeed, well beyond that, to any sector where consented data-sharing can deliver more competition and innovation.
Regions like the UK and the European Union, which started with a more narrowly defined ‘Open Banking’ approach, are now looking towards Open Finance and beyond. Other markets – Australia again, and Brazil, for example – have been able to take a broader approach from the outset. Open Banking leads naturally to Open Insurance and Open Wealth. Open Finance itself is a forerunner of similar approaches in other sectors: open telecommunications, open energy, open health…
Open Banking has been years in the making but is now beginning to clearly demonstrate its potential. In more mature Open Banking markets, the earliest use cases – such as offering an aggregated view of accounts and personal financial management tools – are moving from being innovative services delivered by third-party apps to being part of banks’ own offerings.
In the UK, the introduction of Open Banking tax payments represents a tipping point. As consumers become familiar with this new option, the adoption of payment initiation can be expected to spread rapidly.
It’s a similar story – perhaps even more so – for small businesses. Open Banking-enabled services such as the ability to embed payment links in invoices offer compelling value. Open Banking has rapidly become an expected feature of accounting software and added value tools are an increasingly important part of small business banking.
‘Open’ becomes an accepted – and expected – part of how finance is done, and the blueprint for the coming open data world.
This article has first been published in the Open Banking and Open Finance Report 2022. Click here to download the report.
Marie is co-founder of the Open Banking and Open Finance community Open Future World. Marie creates the agenda for the company’s Open Banking World Congress and Open X events and curates the acclaimed Daily Edit of Open Finance news and views.
Open Future World brings together the best people and ideas from across the world of Open Banking and beyond. The Open Banking World Congress, Open X Congress, Open Future World directory, and Daily Edit help the community keep informed and connect with peers and prospects.
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