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Dmitry Dolgorukov is the Co-Founder and Chief Revenue Officer of HES Fintech, a leader in offering intelligent lending systems to financial institutions.
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Then there came open banking, which marked a significant stride forward in the democratization of the financial services business. Consumers were able to interact with a bigger selection of financial goods and exercise greater control over their financial future thanks to third-party access to banking via application programming interfaces (APIs).
Now is the time for open technology to take off. Following in the footsteps of open banking, the evolution of open finance might usher in a new era of financial innovation for both consumers and suppliers.
What is the definition of open finance?
Previously, all financial transactions were handled by a single entity: a bank. Not only did they have complete control over all financial business choices (such as whether or not a loan was accepted), but they also had a limited variety of financial items to offer.
Open finance is built on data-sharing principles that enable banks to provide a larger range of options to their customers that are tailored to their unique needs. Meanwhile, this opens up a world of financial possibilities for individuals. Consumers may be able to have more effective access to more effective:
ADDITIONAL INFORMATION FOR YOU
o Savings systems. o Private mortgages.
o Funds for retirement.
Insurance, credit, and investments are all examples of financial services.
Essentially, it has the potential to empower people to take control of their finances and do more with it. Banks can work with a variety of companies to provide a broader range of services depending on customer data.
In practice, what does open finance entail?
Open finance may appear to be a broad term. Here’s how I’d go about narrowing it down: Perhaps you’ve just opened your banking app and spotted some new features, such as the ability to add accounts from different banks to let you monitor all of your accounts at once, or you’ve just added your bank account to your investment app to see how much you can invest this month. This is what open finance is all about.
Consumers and financial institutions could benefit from it in a variety of ways. Consider the following scenario:
o Utility comparison: You can uncover better rates from other suppliers and learn how to save money on your existing bills by comparing utilities.
o Recurring bills: You may be able to economize or combine payments if you use direct debits. You may also examine how much money you’re spending on subscriptions and other services.
o Make direct payments: Consumers can use payment initiation services to make direct payments from their bank accounts without using a credit or debit card. Consumers will be able to make payments more easily, and businesses will get paid more quickly.
o Lending-related dashboards: Dashboards can help lenders offer more competitive services at lower prices. Furthermore, with more detailed information, they may be able to reduce the risk of lending.
Is open finance a risky business?
While data security issues should not be discounted out of hand, it’s important to remember that while developing open finance systems, security should always come first. Companies interested in taking advantage of open finance should first guarantee that their products and services fulfill the highest security standards, particularly when it comes to data security.
A corporation can use API technology to access and extract data from bank accounts, which can help identify the best financial products to give a consumer. Banks, on the other hand, must ensure that their data is secure.
Furthermore, there are issues about bias; open finance may mean closed doors for some, particularly those who already have limited access to banking services.
According to the World Bank, there were 1.7 billion unbanked adults globally in 2017. In the United States alone, the Federal Reserve reported that 6% of the population was unbanked in 2018, with another 16% underbanked. Some worry that the absence of credit or banking history of these groups would work against them when it comes to open banking, as the statistics will reveal an unjustified bias against them.
The Road to a More Equitable Financial System
However, I believe that if properly implemented, open finance can result in more equitable finance. If companies take the necessary steps to reduce the risk of bias, such as ensuring that their artificial intelligence software is correctly built to account for those with less-than-ideal financial backgrounds and developing risk-management strategies that correlate to market reality, the outcomes they produce could be more equitable for all.
Consumers should be able to select the data they disclose, how they interact with their finances, and have unrivaled access to products and services they might not have had otherwise.
Furthermore, open finance should promote transparency. Consumers should no longer be left wondering if they may get a better price elsewhere. Instead, open finance can expose it and assist consumers in determining whether or not their existing financial package is suitable for them.
What’s next in the world of open finance?
Although I believe open finance has a bright future, all of the essential procedures have yet to be put in place to fully realize its potential. Open banking is currently limited in reach in the United Kingdom. While groups such as the FCA are spearheading debates about how to move forward in the field, the development appears to be modest and steady. Australia is in a similar situation, owing to red tape and the hefty expense of obtaining licensed to gather customer data, according to experts.
Meanwhile, in the United States, things are a little different. The Financial Data Exchange, which formed “a consortium of providers around a single standard for secure access to financial data,” is at the forefront of the open finance movement. I’ve seen that industry executives in the United States appear to be hell-bent on developing a more complete model. This might open up access to a wider range of products and services in the coming years, making the United States a leader in the field.
It’s critical for fintech companies considering how to connect their products with open finance to first understand how the technology may help clients while maintaining data security. Second, consider how you can effortlessly incorporate it into your existing offerings.
There’s still a lot of work to be done, but I feel what we’re seeing now in the world of finance is an exciting trend that I hope will only continue to expand.
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