Are you ready for open finance?

Like its predecessor open banking, open finance aims to promote competition among financial providers, drive digital innovation and promote new, open, data-driven services. The ultimate beneficiaries are customers who should enjoy greater access to enriched and tailored products and favourable pricing models customised for the individual’s needs. The Financial Conduct Authority (FCA) describes open finance as having the potential to ‘transform’ the way consumers and businesses use financial services. So, how should the industry prepare?

Although the FCA has yet to publish a compliance timeframe, open finance is bound to happen; smart firms are already planning for success and there will be early mover advantages. While the discussion ensues about technicalities, there are many things we already know. Open finance is fundamentally about data and open technologies and much can be learnt from open banking experiences.

Prepare to participate – or be prepared to lose out

For those who have delivered successful open banking projects around the world, practical experience shows the transformational potential of open banking. I believe open finance expands similar benefits to more parties. The time is now right for open finance and that all firms should start planning now. To grasp the opportunity all firms need to:

• Develop an API management infrastructure, including an API gateway, API manager, developer portal and marketplace
• Implement a strong API governance framework to manage development, deployment and version control of APIs
• Accelerate a cloud strategy to leverage scalable architecture, insulate core systems and control costs
• Agree a data federation policy to enable self-service and boost efficiency.

While this may seem daunting, the encouraging news is that many firms already have major projects underway in each of these areas to address multiple strategic objectives. And those that do not, must start soon.

Compliance obligation or unique business opportunity?

Open finance is a unique business opportunity. Building on the conceptual framework of open banking, it promises to boost innovation and competition throughout financial services by empowering consumers and SMEs to share their data with authorised third parties. Just like open banking, open finance potentially provides benefits to all parties, but the ultimate winner is the customer, who will enjoy improved choice and new data-driven services.

In the UK, the Financial Conduct Authority (FCA) has provided a regulatory framework for open finance. The initiative mandates all financial institutions to give authorised third parties read-and-write access to customer’s account data. Although mandatory, open finance should not be viewed as just another compliance obligation. In practice, it is an opportunity to do new things and do things in new ways. Examples of innovations that are made possible by open finance include:

• Holistic aggregation of a customer’s finances
• Frictionless switching and renewal services
• Value-add money saving advice like ‘Have you considered using your mortgage overpayments to top up your pension?’
• Tailored consumer credit worthiness assessments to make credit available to new customer groups.

While the FCA’s consultation period closed on October 1st 2020, technical standards are developing and there is no fixed compliance timeframe. There is no time to waste because the clock will start ticking sooner than you think. .

What does this mean for you?

Practical experience of implementing open banking strategies globally suggests that organisations in scope for open finance regulatory compliance have a lot of work to do. As a minimum, all firms affected must understand the commercial benefits, opportunities and costs of compliance.

The potential opportunities of open finance are substantial and achievable in similar ways to open banking. Agility is paramount and those organisations who think beyond compliance are more likely to build enduring success, by creating innovative services that add most value.

To find out how to realise the potential of open finance – look out for the second part of this blog which focuses on the roadmap towards success.