In the future, open banking will evolve into open finance, expanding its capabilities and bringing more excellent value to financial institutions, third-party suppliers, and their clients. The concept of “open finance” promises to transform open banking and create new opportunities.
What Is The Relationship Between Open Banking And Open Finance?
It makes sense, to begin with learning about open banking to understand the revolutionary potential of open finance better. Third-party financial service providers can gain API access to the bank’s customers’ data through an open banking model.
So, how exactly does open banking work? For the most part, this is how banks give third parties access to their consumers’ financial transactions to create more customised and relevant offerings. And these are the primary advantages of open banking.
Data shared by banks under an open banking concept, on the other hand, is very limited; it does not extend beyond the financial transactions performed within the bank’s app or in a branch office.
How about the concept of open finance? For its part, open finance proposes that all of a user’s financial data be collected in one place, including but not limited to bank transactions, digital wallet expenditures, insurance and retirement accounts, investments, money transfers and cryptocurrency dealings.
As a result, open finance is the next logical step in the evolution of open banking. Unlike open banking, where third parties can only access a tiny portion of the data created by consumers, open finance gives them complete access to all of that data.
It is important to note that open finance calls customers to be in charge of their own data, allowing them to choose how it is shared.
What Values Does Open Finance Drive?
According to current predictions, open banking’s next evolution will be toward open finance. The open banking benefits are transformed and leveraged by adding the following values to each of the parties:
Transparency for customers and lenders
Open finance promises that both lenders and borrowers will benefit from greater transparency. While the former can only raise their credit score based on their bank’s financial data, the latter can use all of their financial information to do so. On the other hand, lenders benefit from this possibility since they can make more informed lending decisions based on AI’s ability to anticipate the likelihood of a smooth pay-off.
More data volume
Financial institutions, insurance firms, fintech companies, and banks will be able to collect massive amounts of data about how their customers spend their money thanks to open finance. As a result, AI-powered data analysis will enable more accurate service recommendations, capture and analyse spending trends, anticipate the needs of customers, and assist users in making more profound financial decisions, all of which will benefit customers.
Improved data management and organisation
The fundamental principle of open finance is that customers have the ability to determine what data they disclose and with whom. APIs also suggest stronger authentication and access control procedures and systems to implement open finance.
With open finance, users may access all their financial services from a single location. For them, this is a time- and effort-saving choice for managing all of their financial accounts and transactions.