How Open Finance Is Leading to a New Era of Bank-Customer Relationships | by Michel Kilzi | Feb, 2022

The Open Finance eco-system has been on the rise for several years and is now evolving into a Network of networks supercharging a new value chain of data.

What is Open Finance and how is it different from Open Banking?

To put it briefly, Open Finance brings a new data-sharing model through which users can share their financial footprint with third parties. Open Finance is the next step beyond Open Banking since such data is not exclusively from a bank but from any other sources like retailers or even utility providers.

Open Finance provides access to a consumer’s entire financial footprint from his conventional and alternative financial connections.

This data sharing, through APIs, is then leveraged to craft new products and solutions tailored to meet the users’ specific preferences and needs.

Such APIs are becoming the foundation of new superconductor enablers of personalized services in a contextual experience, explicitly when and where the consumer needs it.

Huge strides have been made in 2021 moving from Open Banking to Open Finance, but 2022 will be all about the Open Data economy. Here’s how this works.

Open Finance caters to the evolving needs of customers — Immediacy and Personalization

We are increasingly witnessing the syndrome of immediacy — Users need a financial service in a very specific contextual status and immediately.

Open Finance provides a real opportunity to design entirely new digital financial services from the ground up, using modern KYC, authentication, and fundamentally streamlined conductors to aggregate the appropriate sets of data. This data sets unlock certain decision-making that was impossible in a conventional off-line environment. According to Capgemini’s ‘World Payments Report 2021,’ 86% of customers are willing to share their financial data with non-banks if this helps create more personalized and feature-rich experiences.

With the help of Open Finance and Embedded Finance, any independent player can now stand up against large players in terms of building more effective user experiences, resulting in boosting their topline. As a result, the competitive focus is shifting from product features to data, speed, and contextual added-value financial services.

The development of open ecosystems will intensify banking fragmentation. For example, users might choose from different Fintech, or Financial Institution, a separate financial service for their shopping experience and probably a different one for their mortgage, or their saving aspirations.

However, Open Finance will enable banks to reinvent certain traditional bank revenue streams and charge new fees from API conductors by allowing Fintech to build new client-facing channels.

APIs are the backbone of Open Finance, bringing together different silos to unlock a blend of functionalities, forming new contextual and added-value financial services. This shifts the focus from rigid banking products to flexible, niche added-value offerings aimed at solving contextual pain points for both individuals and SMEs.

Fintech companies are building capabilities to aggregate and extract valuable insights from different data-touch points to build meaningful customer experiences while keeping customer data safe and secure.

Such a data value chain is leap-frogging into democratizing finance — driving more inclusion and better integration of financial services into the lifestyle of every one of us.

The Open Data economy can be understood through a simple equation —

Access to data + Smart financial service design = Higher perceived value/ Higher adoption

Access to data supports the decentralization of finance, which opens new avenues for:

• more contextual customer servicing
• more transparency into the eco-system
• optimized pricing models
• reduced superfluous costs passed to customers
• optimized risk for financial institutions
• and finally, optimized individual financial footprints

The majority of such financial services are fairly generic in nature, but through data analytics, financial product design can become more fit to purpose and designed for specific clusters that meet their particular needs.

To create this network of networks, we should aim to strengthen the data conduits infrastructure and build a transparent and open-sharing ecosystem where trust becomes multi-dimensional between parties, based on strong authenticated credentials between the relevant counterparties.

Data-sharing can build bridges between lenders and businesses, enabling faster access to financing through consent-driven data sharing of constantly-updated relevant information.

Open Finance paves the way for innovation and inclusion of financial services, based on data from multiple sources outside of banking. For example, even data from gig-economy platforms like Uber or Airbnb ratings become part of your credentials and play a role in your financial service recommendations.

As such, your identity and credentials become more relevant and dynamic in an Open Data sharing environment respecting customer sovereignty, while ensuring identity portability and interoperability. This way, we make sure we can incorporate relevant stakeholders into a framework that enables new players to build value on top.

In my opinion, Open Finance players will avail frictionless and seamless delivery of financial services and take ownership of the “banking” relationships as they start upscaling the perceived value in the lives of individuals and SMEs.

The industry should also continue to work on security to boost confidence in the ecosystem, as it is also about privacy, making sure that data does not fall into the wrong hands.

Finally, I would encourage banks to embrace partnerships with Fintech and brands with knowledge and expertise in specific client-facing areas.

Here’s what we can do to build on Open Finance:

• Rethink partnership and collaboration models
• Re-evaluate the operating models of choice
• Invest in enhanced data discovery models

When banks join forces with Fintech professionals and innovate new models of data-sharing, user data security, and regulations, we are bound to see the emergence of outstanding personalized products and services like never before.