Open finance is the next level of disruptive innovation in the Financial Industry

Due to the reduced use of cash, increased knowledge and confidence in digital payments, customer demands have reshaped the banking and payment industry, beyond the regulatory obligations of the PSD2 directive, requiring banks to innovate both in terms of technology and mindset, in order to remain relevant and competitive, against expanding fintech and BigTech operators.

Embracing the technological revolution:

Consequently, banks have needed to review their traditional business models and embrace the technological revolution, through new partnerships with market incumbents and newcomers in the field of innovative technologies, which provide for new VAS for consumers, in what has become a data driven, transactional and networked economy.

In this scenario, Open Banking has both fostered digitalisation and a cultural awakening towards the benefits of new collaborative ecosystems, in which the interconnectedness of each player can gain and contribute to sustainable, circular economic growth and value creation, through enhanced services, increased frictionless and secure functionality and interoperability.

It is clear that in what remains a rapidly changing market landscape, in which disruptive innovation is both increasing competition and blurring industry lines, open banking not only represents a ‘win-win’ scenario for banks and customers alike, but an inevitable first step towards open finance.

Irrespective of whether open banking has been driven by regulation or market players, and its state of maturity and approach taken, open banking represents a global phenomenon, with over 60 countries adopting open banking and open data measures, and an estimated 24 million users worldwide.

The emergence and diffusion of new data sharing models:

The international emergence and diffusion of new data sharing models, supported by innovations such as decentralised transaction validation technologies and biometric identification systems, all point to further disruption in Financial Services, with a distinct possibility and opportunity of open banking transitioning towards open finance. The EU digital finance strategy and UK’s FCA Open Finance Consultations of 2021,all point in this direction.

Building upon the advancements in secure data sharing technology that have created digital payment ecosystems, our goal is that of layering shared functionality over a broader set of data, thus connecting products and services, which simultaneously create a new level of openness and permit a wider financial footprint.

It is thus clear that open finance is the next level of disruptive innovation in the financial industry, which banks will necessarily need to endorse to match the position of trust they currently enjoy with that of a competitive player in an increasingly transactional and digital marketplace.

(An excerpt from Finextra’s report, ‘The Future of Payments 2022: The cutting edge of digital payments’)