Voice of the Industry

Three forces driving Open Finance innovation

Thursday 11 November 2021 09:09 CET | Editor: Vlad Macovei | Voice of the industry

Vaughan Jenkins, Sales Director at Moneyhub, explains what is fueling the growth of Open Banking on its path to Open Finance

This article was originally published inside the Open Banking Report 2021. Click here to download the full report.

Open Data is the ultimate destination of global economies, but for this future to be realised we need several elements to come together in a synchronised fashion. According to the Smart Data Working Group, the three key ingredients are:

  1. Legal and regulatory control
  2. Industry innovation
  3. Consumer adoption

Think of it like putting up a Christmas tree: having centred our Smart Data tree, the three clamps in the base have to be tightened at the same pace or else our tree will be wonky, or worse. To stretch the analogy, without a stable base, all of the good work of fintechs and early adopters – let’s call them the baubles and bright lights – hangs precariously.

It should certainly be worth the effort: Open Data is estimated to bring GDP benefits of 1-5% p.a. It is no wonder then that countries from Brazil to Singapore have some form of Open Data initiative, often starting with the banking sector.

Even so, complexity has a dampening effect on the rate of change: the UK’s Pension Dashboard programme is a good example of circumstantial issues, the drag of legacy systems and the cost of change making access to information difficult. New technologies also typically have some displacement impact and can face resistance from vested interests. Open Banking is a case in point.

Right now, a lot of emphasis is being placed on governance and the need for legal and regulatory compulsion to force large industry players to increase their participation levels to bring Open Finance to fruition.

Regulatory agenda

The Smart Data Working Group has repeated that legislative proposals will be advanced, subject to parliamentary time, and therein lies the rub. In a post-Brexit, pandemic-ravaged world, Smart Data has dropped down the agenda.

At a time when the governance of Open Banking is also in flux, the widening of the scope to products and services outside of PSD2 (Open Finance) seems to some to be poor timing.

That said, the actions of the CMA to haul the banks into Open Banking does at least seem to have created a consensus that Open Finance is the ultimate destination for the industry and, indeed, that Open Data is coming in telecoms, energy, and other utilities markets. And this is not just a UK phenomenon, as Australia’s Consumer Data Rights policy shows.

As we have seen with Open Banking, putting legislation and regulation on the books has to be accompanied by active supervision if benefits are to be realised.

Industry and vested interest

The Working Group also recognised that more enlightened parties from within a variety of supply side enterprises have started to create initiatives around data sharing and open standards.

TISA’s Open Savings, Investments and Pensions (OSIP) initiative is one example and Moneyhub is working on an OSIP Sandbox facility to create a focal point for collaboration on developing new standards for Open Finance. The Pensions Dashboards Programme is another important industry venture.

Open Banking pioneers in action

One of the few positive side-effects of the global pandemic has been the growth in the number of Open Banking providers. The UK has far more than any other country with 325 regulated providers, and in the year to December 2020 the number of live propositions grew by 76%.

But industry understanding and adoption is patchy. Some banks and insurance companies would be astonished by the Open Finance capabilities of employee benefit consultants such as Aon and Mercer, which have developed (with help from Moneyhub) data insights covering a holistic view of employee income, expenditure, assets, and liabilities, going far beyond the scope and capability of banking apps.

Consumer value exchange

Another essential dynamic is consumer demand. A multitude of research shows that consumers value the benefits of Open Finance because of the ability to see all of their finances in one place, to top-up their savings and investments accounts easily and immediately with in-app payment sweeps and to have an objective indication of how well their investments are performing.

However, any presentation on the power of Open Finance to positively impact consumer outcomes is soon met with concerns about privacy and security. And though data security is obviously of paramount importance, industry and government have to get across how encryption and distributed data architecture defeat the kind of hacks that legacy systems and old data storage methods are susceptible to.

Indeed, when the benefits are explained to consumers, their propensity to use Open Finance soon becomes apparent. A recent McKinsey study conducted with 3,000 UK consumers and SMEs showed sentiment towards data sharing was positive when consumers found a particular feature or service appealing or when they understood the value it might bring to their lives.

Unfortunately, when Open Banking was introduced in the UK, there was no public awareness campaign highlighting the benefits. Coming after GDPR and heightened sensitivity about data, identity theft and online fraud, the conditions were not ideal to evangelise about the benefits of data sharing.

That hasn’t stopped the rise in the use of Open Banking though (over 3 million at last count), nor in the numbers using Open Finance apps. In fact, as propositions broaden, so does the appeal, and attention is turning to how far Open Finance is supporting financial wellbeing, financial inclusion, and lower cost services.

Prove it, prove it

There is no hiding from the inevitable move towards Smart Data and Open Finance. The business, consumer, and societal benefits are irresistible. Now is the time to prove ideas, demonstrate value, and secure funding so that when the three forces (legal and regulatory control, industry innovation, and consumer adoption) combine, you are not closed out of customer relationships that had been taken for granted.

About Vaughan Jenkins

Vaughan has worked as a senior manager in the financial services sector and as a CEO and Partner in management consultancy firms. He has written and lectured on fintech and financial wellbeing and was an Advisory Board member for the UK Financial Capability strategy.



About Moneyhub

is the leading Open Banking and Open Finance data, intelligence and payments platform. Our APIs and white label solutions help businesses drive customer engagement through hyper-personalised experiences, which enhances financial wellness by putting the power of data back into the hands of those who own it: the consumer. 

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Categories: Banking & Fintech | Online & Mobile Banking
Countries: World
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Banking & Fintech