As the world undergoes a digital transformation, a new financial paradigm, known as Open Finance, the successor to Open Banking, is gaining traction. It signifies a move towards a more interconnected, customer-centric approach to banking, investing, insuring, and other financial affairs, all fueled by technological advancements and data collaboration.
Europe has already pioneered the Open Banking revolution, positioned as the world’s best-performing region in terms of the number of Open Banking API Products according to a report by Platformable1. Key to its success has been the introduction of groundbreaking regulations, such as PSD2 (Payment Services Directive 2) in 2019, which aims to increase competition and participation in the payments industry from non-banks, fostering innovation and enhancing consumer protection.
With the European Commission’s latest proposal of PSD3/PSR and Financial Data Access (FIDA), the regulatory approach to Open Finance, Europe is laying the foundations for an Open Data Economy in the Financial Services Industry. Up to now, banks have been obliged to give third-party providers access to customers’ transactions, according to PSD2. However, with the rollout of FIDA, banks will have enhanced opportunities to establish themselves as pivotal figures in the financial landscape by accessing data from insurance, investments, mortgages, and beyond.
As a result, banks can pivot their role in the financial ecosystem. Instead of merely holding data, they can now actively utilize it, interfacing with APIs from other financial entities. This development ushers in an array of regulated use cases, benefiting not just banks but also non-banking entities and various financial service providers. We’ll delve into some of these in the subsequent sections. With Open Finance, both banks and non-banks have the potential to generate revenue within a data-sharing ecosystem. Furthermore, as Generative AI, such as Chat GPT, becomes more prevalent, Open Finance can capitalize on an array of new use cases.
