by Aline Melleiro, Analista de Marketing – EMEA & Latam
Financial markets: From Open Banking to Open Finance
Financial markets are increasingly changing the way that firms are offering new products and services to their customers. Considering Open Banking the start of a new era, where data is the new petrol, banks are being forced to rethink their operations, strategy and business models. Also, Open Banking made companies realize they have to be prepared for the new trends, where there is a huge focus on user experience.
Banks and Fintechs can work together to explore all the potential of data that banks have. So, operating as a platform, where the value will be created by the connections to partners, is one of the most incredible things Open Banking and Open Finance will bring to the market and will directly benefit end-consumers.
Day by day companies are getting rid of manual processes and having much more control, automation and governance around all the integration that Open Finance provides. Indeed, Open Finance benefits are limitless and are contributing to creating new customers journeys, combining services from different markets and enabling the creation of highly tailored products that consumers have not considered before.
For example, if a bank that offers insurance services – either using its own products or from partners – while analysing transactional data from a consumer realizes that every year there are costs associated with skiing winter travels. The bank could offer a tailored insurance product for this consumer, or even special discounts from a sports shop (that partners up with the bank) that sells ski material. Another example is the very long process to apply for a mortgage, with Open Finance the dialogue between a bank and all the other institutions that usually provide data to approve a mortgage can be orchestrated and, in the end, what usually would take months may take hours to be completed, or even in real-time in ten years time. So, consumers can be highly benefited by the potential of Open Finance.
Although Open Finance is an interesting framework, full of opportunities, there are several different challenges to consider for its implementation. Some businesses are still not seeing the real value that Open Banking can bring to their institutions. There are also some technical challenges, especially when we consider that most of the traditional banks have legacy systems and monolithic applications, so it is really hard to expose those as APIs to the market. But, one of the biggest challenges for this cultural change, it’s education.
Banks could be getting more value out of customer sharing their data. Making people understand why they are giving consent to the bank and making clear that they are not being exposed to risks, but getting benefits instead, is the right way to surpass this educational challenge.
Another aspect of education it’s about the internal culture of banks. If we think about the history of the financial sector, there is almost a division between the business function and technology. The technology was always there to support the business, but for the first time over the last 10 years we have seen these functions coming together and today it’s becoming almost a single hybrid function.
It’s about culture, it’s about education and we are getting there, but we still have a long distance to cover. Open Finance will definitely happen, in one form or another. It’s only a matter of time, so it’s best to start thinking about what this means for your business – and how you can position yourself to capitalise on these opportunities.