Open Banking To Open Economy

Open Banking Enabling Open And Embedded Experiences?

At WhiteSight, we have had the good fortune to research and analyze Open Banking from several angles, both for our in-house research and our research engagements with a diverse set of clients – such as data aggregators, third-party providers, advisory firms, and technology service providers. In several of these interactions, we have brainstormed over the concepts and the associated terminologies used frequently in the Open Banking parlance.?

In this post, I wanted to take a stab at some of the terminologies that seem to be confusing/misplaced when we speak about the phenomenon that is sweeping the FinTech sector, i.e., Open Banking.?

1?? What Does The Term "Open Data" Mean?

In general, the term Open Data has been accepted in FinTech circles as a futuristic and aspirational end-state for Open Banking where consent-based data sharing will happen across industry sectors – such as telecom, energy, transportation, e-commerce, entertainment, etc. This may unlock significant value for both consumers and businesses, where consumers may benefit from personalized and contextual services, and businesses can benefit by using consumers’ lifestyle and behavioral data to create superior products and services that can be distributed within customer journeys, thus enabling embedded experiences.?

We feel Open Data is a critical component of Open Banking and NOT its futuristic end-state, as is depicted in several of the Open Banking Evolution Representations.?

It’s the scope and scale of Open Data that changes as we progress through different stages of Open Banking. Along with this, the complexity associated with the privacy and security of Open Data also grows exponentially as we move through the different stages of Open Banking.

The primary objective of Open Banking is to facilitate the democratization of data among industry participants intermediated by customer consent. If we agree on this definition, Open Data is very much a part of Open Banking, where the scope and scale of democratization of data are limited to the banking sector.?

?? Open Data in Open Banking?

The democratization of data in the banking sector. This means the scope of data is limited to the information banks hold, which may include KYC data, transaction data, bank account data, etc. Banks are the primary stakeholders who have to enable access to customer data in this avatar of democratization of data.?

?? Open Data in Open Finance?

The democratization of data across financial sectors such as investments, insurance, credit products, retirement and pension accounts, etc. The primary stakeholders who have to enable access to customer data in this avatar of democratization of data are investment brokers, insurance providers, lenders, pension funds, etc.?

?? Open Data in Open Economy:?

The democratization of data across industry sectors such as payroll, telecom, energy, transportation, e-commerce, entertainment, etc. Some people also call it Open Ecosystem, Open Data economy, or Open Everything, which are still logical in terms of having the connotation that describes the scale and scope of the “Openness” that extends far and wide in this scenario.?

2?? Open Banking Is Only About The Democratization Of Data

Open Banking is as much about Open Payments as it is about Open Data. By Open Payments, we mean enabling consumers and businesses to make payments directly from their accounts without the need for any intermediary like a card or a digital wallet. Some other terms to describe this phenomenon are account-to-account payments or pay-by-banks.?

Open Banking has typically been associated with data sharing, as the term gained popularity after the 2018 PSD2 legislation was announced in the UK and Europe. In the initial years, APIs for data access were the most stable and available, which led to the launch of several data-driven use cases such as personal financial management (PFM) apps, digital onboarding, efficient credit assessments, etc.?

By the end of 2020, payment APIs began stabilizing in the UK, followed by Europe in 2021. After this, account-to-account payments started to make headlines as they unlocked significant value for both consumers and merchants. Open Payments in the form of UPI (Unified Payments Interface) in India has already had a stellar run resulting in the coronation of several unicorns.?

3?? Open Banking, Open Finance, and Open Economy for SMBs:

While Open Banking, Open Finance, and Open Economy have become a buzzword worldwide, most use cases and regulatory initiatives are centered around consumer use cases. Even the Consumer Data Right (CDR) initiative in Australia, aiming to expand the scope of data democratization across sectors other than banking, such as telecom and energy, seems to focus on consumer use cases primarily, at least as of now.

Open Economy for small and medium businesses (SMBs) could include a myriad of datasets such as - banking data, accounting data, sales data, inventory data, payroll data, and subscription data (SMBs, especially startups and freelancers, use hundreds of subscription apps for productivity, invoices, payment collection, etc.) which can really enable unfettered access to financial and business growth services to the SMBs.?

We have just taken baby steps toward Open Banking, and several industry and regulatory measures will need to be executed and adopted in tandem to unlock the true value of Open Banking and an Open Economy.?