The banking and financial services industry is in the middle of a radical evolution. The open finance is an example, which is giving consumers access to critical services. To best understand open finance, its beginnings should be looked after. It began in the UK with a study conducted by the Competition and Markets Authority (CMA). This effort focused on the nine largest banks in the region.
CMA wisely took action, requiring these nine to give licensed banking and financial startups. Access to their data introduced a competitive element. It also launched open banking, the precursor to open finance. Open banking is a protected way of sharing customers’ financial information with third-party providers. This differs from open banking because it ties in businesses from outside the financial sector. This includes insurance companies, utility providers, retailers, and more. According to the National Survey of Unbanked and Underbanked Households by the Federal Deposit Insurance Corporation (FDIC), 6% of U.S. households, or a total of 14.1 million American adults, are unbanked. In countries like the Philippines, that percentage is more than 40%.
At the core of open finance are application programming interfaces (APIs). This connects these institutions to other businesses. This includes third parties such as FinTech services. While the idea of being serviced in such a personalized manner is exciting to many consumers. The FCA working to help establish some common standards and roadmaps around open finance. In parallel to these U.K. efforts, open finance has caught the attention of other counties. When done right it’s hard to find a downside to open finance. The key to its growth and success rests in everyone’s ability to embrace this new open arms approach.