Open banking five years on: how close are we to achieving open finance?

Since the introduction of PSD2 five years ago, open banking has changed the game for the financial services industry. By enabling users to securely share their financial data with third-party providers, it has opened a host of possibilities for new, innovative financial products and services that better meet the needs of consumers and businesses.  

And in the current cost of living crisis, utilising customer data to build a more accurate picture of creditworthiness and lend with lower risk is more important than ever. But open banking has allowed providers to go further in analysing their customers’ financial information, personalise products for their needs and offer advanced warning of potential upcoming financial issues. 

It’s safe to say open banking’s benefits haven’t gone unnoticed. So successful has it been, that the CMA last week announce that the six largest banking providers in the UK have now fully implemented the standards required to deliver open banking, helping millions of account holders to securely and safely access new innovative services and products from third-party providers.  

This step has signalled the start of a new phase. The industry is now moving towards the next stages of open banking development: open finance and open data.  

Open finance allows for the creation of new products and services that were previously impossible, taking the principles of open banking and expanding them to include other types of people’s financial data, such as insurance, pensions, mortgages and investments. It can provide such personalised financial advice because data is based on a customer's entire financial history, not just the information held by their bank. Open finance enables fuller, more accurate risk assessments and faster, fairer and more inclusive decisions.   

But how close are we to reaching a fully integrated ecosystem that will achieve open finance?  

The evolution from open banking to open finance does not come without its challenges. For example, one of the main drivers behind the shift is the need to truly fulfil what open banking promised when PSD2 was established: friction free movement around the financial system. However, this has always been slightly stifled, often by the need to break-out of a fully automated process and request manual information.  

Also, who pays for the new set of ever-moving technical goalposts that will lead to open finance? Thus far with open banking, users have benefited from the free-to-access APIs provided at the vast expense of the big banks. To reach open finance a new model must be found that ensures uptake by the data holders, including the smaller providers, whilst also allowing services that are often free to end users to be built upon them.  

If this model cannot be found, then adoption will be low, either leading to low market coverage, or low market adoption – both with the potential to have the opposite effect of consumer frustration, where end users may not understand why their provider is not covered by an application, or there are still gaps in a decision maker’s full view.  

We at CRIF have always been vocal in our support for the original UK approach to advancing the rollout and success open banking - a centralised authority ensuring standardisation and a unified set of technical and regulatory steps for all players in the market. But as we move beyond PSD2, I would urge that the industry continues to guarantee the interoperability between different financial institutions and platforms.  

Ultimately, to keep competition and the ambition of open finance alive in the UK, we need to make sure it is cost effective and not overly complex for innovative small companies to connect to the ever-growing numbers of providers and work in a standardised way with the data they receive.    

Five years on from PSD2, we are clearly on the way to unlocking the potential open finance. I’m excited to see what new innovations and services the industry can develop when open finance is implemented. At CRIF, we will continue to provide peerless open banking-based insights for our customers, and we will continue to work closely with regulators across the ecosystem to help ensure the potential of open finance becomes a reality that people and businesses across the UK can benefit from.