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Globally, the traditional financial landscape as we know it will be radically changed with the advent of Open Banking and Open Finance.

In our previous article, we discussed the concept of Open Banking. In summary, Open Banking takes care of current accounts / transaction data and their sharing with third parties to enable them to develop applications or services around this data, including payment mechanisms.

Open Finance is a consent-based data sharing framework that can enable banks to offer their customers a wider range of possibilities specifically tailored to their needs. Open Finance involves mortgage providers, consumer credit providers, investment and pension funds, as well as general insurers and intermediaries. Open Finance enables banks to work with a variety of providers to provide a wider variety of offers to consumers, including private mortgages, savings schemes, pension funds, loans, insurance and more at reduced costs. .

Open Finance has a range of additional potential uses for consumers and financial institutions, such as utility comparison and direct payments without a credit or debit card. Vendors, such as lenders, can use dashboards to offer more competitive services at better rates and access comprehensive data, which reduces risk.

In 2020, the Financial Sector Conduct Authority (“FSCA”) Conducted an Open Finance survey of more than seventy companies ranging from fintech start-ups to large financial service providers. The FSCA’s “Regulating Open Finance Consulting and Research Paper, 2020” (“FSCA paper“) on the basis of the investigation, present the following conclusions:

  • Screenshot and application programming interface (“API “) are the main technologies used to facilitate Open Finance.
  • Open Finance offers benefits for customers and third parties, an improved customer experience, an improved credit rating, new payment methods and higher levels of competition. It will also advance financial inclusion.
  • “Account aggregation” is seen as the primary benefit that can be derived from Open Finance, as clients will most likely enjoy “seeing all of their financial relationships in one view” to inform their financial decisions.
  • Respondents to the survey unanimously indicated that Fintechs are the most likely to benefit the most from Open Finance.
  • The benefits of Open Finance must be weighed against its risks, including data privacy and cybersecurity issues arising from the large volumes of data that will be exchanged and aggregated by financial service providers serving their clients. Additionally, consumers may not be ready to embrace Open Finance due to lack of digital literacy and consumer education.

The FSCA Paper offers 5 recommendations for Open Finance, namely:

  • vsconsent and vscustomer pprotection

Financial data generated and stored by financial service providers belongs to the consumer, not to institutions. As such, with the informed consent of the consumer, their data may be shared with any authorized third party financial service provider of their choice.

All stakeholders (including financial service providers, third party providers and consumers) should have the capacity to raise and resolve disputes between the parties.

Open APIs that ensure interoperability, efficiency and usability for all participants in the Open Finance value chain should be the standard mechanism for data sharing in the Open Finance context.

Financial service providers should share consumer financial data with third party providers free of charge, with the business basis for doing so at the discretion of the parties involved.

To tackle data breaches and abuse, an accountability framework aligned with the Personal Information Protection Act 2013 should be introduced to hold financial service providers and third-party providers accountable. In addition, to combat the misuse of data algorithms that could lead to unfair discrimination, providers should have a data ethics framework in place and be able to fully demonstrate their understanding of data algorithms to customers. regulators.


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