Since 2018, the government-mandated Open Banking initiative has completely changed the game for financial services firms. This new era in data sharing has transformed the sector, bringing many benefits and opportunities to both customers and businesses.

Open Finance, the next evolutionary step in the Open Banking journey, promises to expand these benefits to a wider set of financial products and customers. By magnifying the scale of secure, API-driven data sharing to the broader financial services ecosystem, including savings, investments, pensions, mortgages, insurance, and more, Open Finance will unlock a multitude of innovative new services and products.

In this blog, we'll explore four new use cases that Open Finance is making possible, including examples of firms that innovating in these spaces, as well as exploring what barriers will need to be overcome to fully leverage the possibilities Open Finance presents.

Use Case 1: Platform Based Models

Platform-based models are where a financial services firm can sit in the centre of an eco-system of partners and offer its customer a range of different services via a single platform. Not only can they boost revenue, but they can help build a loyal customer base and reduce customer churn.

A recent example of this is fintech Revolut’s ‘Stays & Experiences’ offer that allows customers to browse and book accommodation, exchange money, and get emergency medical and dental insurance via its premium offering - all through the Revolut platform.

Use Case 2: Embedded Finance

Embedded Finance is where non-financial services companies can distribute financial services products at the point-of-sale. This is done by embedding financial services partners’ products onto their platforms.

For example, UK retailer John Lewis, provides home insurance underwritten by Royal & Sun Alliance and offers investment products through JPMorgan-owned robo-advisor Nutmeg.

Use Case 3: Banking-as-a-service (BAAS)

Through BaaS partnerships, a financial services firm lends its licensed infrastructure on a white-label basis to a non-banking, non-licenced partner via APIs, allowing them to offer regulated products and services.

The world’s biggest company, Apple, now offers banking-as-a-service by offering a consumer credit card in the US via its partnership with Goldman Sachs (at the time of writing, recent news stories indicate the partnership is being wound down). While in the UK, Starling Bank’s BaaS product, Engine, provides non-banking business customers with the technology and licensed infrastructure to offer banking products and services, and offers Starling an alternative revenue stream.

Use Case 4: Augment Risk Assessment To Drive Financial Inclusion

Open Banking has already begun to disrupt lending because the use of real-time data gives a more accurate and recent assessment of a customer's credit worthiness. With the increased sharing of data across the financial services ecosystem with Open Finance, even more people and businesses will become viable customers.

ClearScore and MoneyHub are two examples of B2B fintechs that offer a host of lenders Open Banking APIs to collect comprehensive financial information about potential borrowers to paint a more detailed overview of their affordability.

The Challenges of Open Financing

Open Finance offers fantastic opportunities, but there are undoubtedly issues to be wary of when adopting it. The two primary roadblocks that stand in the way of financial services firms from fully exploiting the possibilities of Open Finance are:

1. Integration Challenges: Legacy technology infrastructure can hinder data sharing through open architecture, and its dependence on these systems can create data silos. This can be a big obstacle for financial services firms as open infrastructures and a high degree of integration are needed to fully exploit the possibilities of Open Financing, such as BaaS. The efforts involved in integrating API offerings can also stand in the way of adoption from customers, leading to missed opportunities for both customers and firms.
2. Hesitancy: Financial services firms may be uncertain where they fit in when contributing to data-sharing eco-systems. Limited customer adoption also stands in the way of Open Finance success. For example, financial services firms may not adopt API offerings due to the risks involved in integrating these services and changing existing processes. 

Call to Action

The benefits of Open Finance for financial service firms and their customers are clear. However, slow-moving companies risk missing out on revenue, falling behind competitors, or even being caught flat-footed by fast-moving regulatory changes. It’s therefore vital to react quickly to these developments if you’re a financial services firm.

If your business wishes to seize the opportunities of Open Finance, our eBook, ‘The Open Finance Opportunity: Driving Revenue Growth and Enhancing the Customer Experience Through Data Sharing’ is an excellent resource for delving further into the subject.

This eBook explores the background of Open Finance and what’s driving this development across the financial services industry. It details the possibilities for financial services firms, such as the platform-based model and revenue opportunities, as well as customer experience enhancement opportunities like Open Banking Payments, Pay-by-Bank, and Variable Recurring Payments.

This eBook also not only foresees the technical and business challenges firms encounter when adopting Open Finance but also highlights the imminent expectation from customers for the seamless digital-led experience it provides. Moreover, it emphasises the risks of missing out and stresses the importance of incorporating the complete spectrum of financial services providers into the domain of data sharing to prevent falling behind competitors.