Customer and industry led approach to Open Finance

The Second Payment Services Directive (PSD2) and Open Banking regulations in the UK required financial institutions, on their customers’ request, to share their customer’s payment account data with third party providers such as fintechs.  Open Finance is an industry led initiative looking to increase the scope of financial data sharing beyond payment accounts.

This would unlock far more fintech products and services for consumers and small to medium sized enterprises (customers) than is possible today, with just PSD2 and Open Banking. One such example is providing customers a single view of all their finances. In order to do this holistically, third party providers also need access to non-payment customer accounts data such as data from savings, mortgage and investment accounts. Open Finance could enable this and many more fintech products and services, thus creating far greater value for end customers.

Open Finance could ultimately create a greater balance of power between financial institutions and their customers and could put customers in greater control of their financial lives than is possible today.

However, to realise this grand vision, lessons from such past initiatives need to be taken into account to ensure the success of Open Finance. Here are some of the top considerations in that respect:

1. Consult the industry: The industry, including fintech innovators and established providers need to be consulted. This is to understand the potential Open Finance enabled products and services (use cases) that may be in demand, are commercially viable and would truly solve real customer problems. A finite list of these uses cases would form the initial scope of Open Finance.
2. Test use cases with customers: Using customer research and consumers facing organisations, the uses cases established above need to be tested with customers to ascertain the priority problems and as result priority use cases that need to be addressed as part of the Open Finance initiative. This would further refine the scope of Open Finance.
3. Test feasibility and define roadmap: The next step is to determine scope of what financial institutions will actually need to deliver to support Open Finance, how feasible that is and how much customer value it would unlock. Based on an extensive cost benefit analysis, the final scope and the roadmap for the delivery of the Open Finance could be ascertained.
4. Regulatory vs commercially driven incentives: In order for Open Finance to be successful in the long-term, consideration needs to be given to regulatory vs. market driven incentives for the financial institutions to create and support the infrastructure needed for data sharing. Regulation may help initiate Open Finance, but it is the long-term commercial viability of providing such services that will sustain the efficacy of Open Finance. This means thought needs to be given to which data financial institutions must share for free and which data they could charge for.  
5. Iterative delivery to the market: Open Finance would impact far greater financial institutions than before, therefore an iterative process is needed to realise the scope of Open Finance. This means delivering part of the roadmap, assessing how the market reacts to it, uptake by customers etc and then tweaking the approach to future roadmap items accordingly. In practice, this would require starting with point 1 above again for future roadmap items, but just at a much smaller scale.

Such a customer and industry led approach would ensure customers truly benefit from Open Finance and minimal effort is wasted by financial institutions in making it happen.

The views expressed in this blog are solely my views and not of any other organisations. 

Haydon & Company Limited | rishi.chauhan@haydonandco.com