Open Banking and its data-sharing principles have shaken up the finance industry. For those consumers and businesses who’ve embraced it, the benefits have been significant as more applications come online – whether that’s account aggregation, personal finance management, or better credit scoring and account-to-account money transfers.
But the party is only getting started. Enter Open Finance.
While Open Banking applies to payment accounts (such as current accounts), Open Finance is the enablement of third-party providers to utilize customers’ permissioned data across a broader range of financial sectors and products, including savings and investments, with mortgages, pensions and insurance policies soon to follow.
It’s this broad scope, the potential to focus on individuals’ total financial lives, that makes Open Finance both exciting and disruptive.
Open Finance Relies on Open Data
Like Open Banking, Open Finance is about access to data. That includes the sources of data, and how the data is collected, shared and structured. In order to create applications that offer useful services, educated recommendations and insights that consumers will trust – and continue to give their permission to use – the data must also be accurate and reflect the real world.
This is the job of data aggregators. They can collect and structure this data, as well as manage the required data permissioning, to make it usable, accessible and truly open. Through this process, financial products can be automated, verified, and scaled.
What is Open Data and What Is It Used for?
Open data are large datasets that are accessible to the public and can be used, re-used, and redistributed by anyone. It’s not to be confused with Big Data, the term used to describe the increasing quantity and complexity of data being generated around the world every day.
Open data can be anything from public data collected by government agencies to economic trend roundups from financial conglomerates. Some popular federal government open data sources include data.gov and the U.S. Census Bureau and are used by both commercial and nonprofit sectors.
What’s the Difference Between Open Source and Open Data?
Open source and open data are not quite the same, but they both offer ways to create new and better services based on published data. For example, information made available for public use that increases transparency of government agencies and private entities is one improvement upon current systems.
Open source software, as opposed to open data, is software that is to be distributed freely, without discrimination, and which produces source code, which is the building block developers use for creating apps, APIs and websites.
Is Using Open Data Secure?
The sharing of personal data is not something to be taken lightly. The good news is many open banking APIs provide a highly secure way to transfer data by enabling applications to share data without sharing account credentials. Historically, consumers have provided their login ID and password (credentials) to data aggregators, which enabled data aggregators to access the financial institution website and retrieve the consumers’ data, in a process known as screen scraping. This process of collecting screen display data has been a common technique since the 1980s.
However, open banking enables the financial industry to move away from this legacy technology that’s overly reliant on consumer credentials, and move to a new paradigm of connectivity, which is reliant upon API and tokens. It does this while still rooted in the banks’ and financial institutions’ established, highly secure technology programs, providing another layer of security.
The Future of Open Finance
Whether you’re working for a bank, a fintech or a data-driven business examining new ventures, open finance matters. It matters to the products you offer today, those you’re looking to offer with additional data services, and those you’ve yet to design.
That’s because open finance has the potential to encompass all financial data and transform the way consumers and businesses use financial services in the process. With Open Finance, finding clients and turning them into customers becomes far more efficient. At the same time, it affords consumers the opportunity to exercise choice in how they access, use and engage with tools and services best suited to improve their financial well-being. The future is indeed open.