Open finance is transforming the financial industry and making it easier for people to access and use their financial data. Many people use the terms open banking and finance interchangeably.
While the confusion between the two terms is understandable, open banking and finance differ from one another. Organizations need to understand those differences and how new data-sharing models can be used to create more value for customers.
This post will explain what open finance is, how it differs from open banking, and how it benefits consumers, businesses, and financial institutions.
What Is Open Finance?
To fully understand open finance, it is important to understand open banking. Open banking enables consumers to share their banking data with third-party businesses through the utilization of application programming interfaces (APIs).
By enabling businesses to gain access to consumer data, they can deliver new products and services, such as loans, branded debit cards, etc. However, customer data, in regard to financial information, is more expansive than just banking data.
For example, people invest their money, pay utility bills, have pensions and other funds, etc. Open finance enables consumers to share data from a wider range of financial products and services than open banking.
Open banking is related to banking information. Open finance includes banking information but also enables wider integration of financial information with non-financial organizations like utility providers or healthcare clinics.
In essence, it is a broader form of the data aggregation and sharing offered through open banking models.
The Benefits for Businesses
The most significant benefit of open finance for businesses is that it enables them to develop new business models and products. In addition, organizations can use this data to provide customized experiences to their customers.
Companies can innovate and deliver unparalleled customer experiences that drive brand loyalty and help them capture a larger market share using the full value of financial data and technology.
Plus, with greater access to data through standardized APIs, companies can gain new insights into customer behavior and market trends that were not apparent previously. This can help companies identify new opportunities and optimize business operations.
The Benefits for Financial Institutions
Open finance greatly benefits banks and other institutions, like credit unions. It enables them to reduce risk and improve fraud detection. For example, instead of screen scraping, where consumers have to share their name and password, an API is used to connect services.
As a result, banks and other institutions eliminate the risks that come from sharing credentials. In addition, it helps these traditional institutions form new business partnerships with emerging businesses and develop new products.
While these institutions are sharing their customers’ financial data, they are also seeing data on spending habits and which businesses and entities their customers give access to their financials.
With this valuable data, banks can strike new strategic partnerships and develop innovative new features and products to deliver additional value to their customers.
The Benefits for Consumers
Businesses, banks, and other institutions are benefiting from open finance, but how do consumers benefit from this new data-sharing model? The most significant benefit of open finance for customers is that they have greater control over their sensitive financial data.
Thanks to open finance, consumers have far greater control over who gets access to their financial information and how it is used. Furthermore, it gives consumers access to a broader range of services and products.
With APIs, consumers can connect financial accounts with other data sources to gain a more comprehensive view of their finances.
The open financial data revolution is just getting started. While open banking and other financial services have been gaining momentum, open finance is just beginning to emerge as a real consideration for businesses and consumers.
FinTech companies are driving innovation in this sector, but all businesses have a chance to utilize these services to develop new products and services for their customers. If you want to learn more about the capabilities of open finance, contact an experienced FinTech development partner like Koombea.