Open Banking provides third-party financial service providers with open access to banking data, transactions and other financial information through application programming interfaces (APIs).
This has been the basis for the creation of digital banks such as Revolut that use banking infrastructure providers.
Open Banking is only a step on the road to Open Finance
While Open Banking APIs allow users to share their bank account information, Open Finance goes a step further and allows data to be shared from various sources, such as accounting and billing platforms.
Connecting to accounting and invoicing platforms is especially important for corporate and SME banking customers, as they form the basis of corporate financial data. A bank statement can provide insight into how much money a customer has deposited into their account over a period of time, but accounting data can provide a much more comprehensive view of a customer's financial situation. Access to more robust data gives financial institutions and fintech apps the freedom to offer personalized services, from insurance to mortgages and loans.
APIs not only enable open finance, but also allow fintech companies and established institutions to build additional banking services into their product without investing time and resources in API development. In this way, they can quickly offer new services to their customers and gain a competitive advantage.
Open Finance will transform a plethora of products and services in financial services and beyond.
Mortgage and loan approvals will be instant and fully digital, with access to data on assets, liabilities and net income. Pension switching will be automatic based on current and projected portfolios.
Financial advice will become much more individualised and powerful thanks to improved data access.
Small and medium-sized enterprises will be able to make their cash flow information available to multiple potential lenders to easily obtain the most favourable loan rates.