Open Banking, Open Finance, and Open Data are all terms sparking conversation amongst banks and FinTechs. While Open Banking is more understood, Open Finance is harder to pin down. Open Finance, or the extension of the benefits of Open Banking, provides users access to a wide range of financial services anywhere, anytime. Some of those services include banking services, investing, insurance, and more. It eliminates the traditional financial inclusion barriers, enabling users to access the same services as larger financial institutions without the same costs, requirements, or restrictions. Because it provides consumers with increased flexibility, convenience, transparency, and control over their finances, Open Finance is gaining traction in the banking and FinTech world.
What Is Open Finance?
In order to understand the applicability of Open Finance, you have to understand Open Banking. While Open Banking refers to the sharing of data among financial institutions and third-party providers (TPP), Open Finance refers to the use of said data to offer personalized financial services. Although similar in practice to Open Banking solutions, Open Finance is the next step and allows for more consumer control over who has access to their financial data and what they do with it.
When consumers and businesses utilize Open Finance solutions, they can build more personalized experiences and change how consumers interact with financial products and services. It also helps them make better decisions based on the data insights they can gain through Open Finance services. This supports financial wellness since consumers can take more accountability for their finances.
Other ways that you can use Open Finance include mitigating fraud and risk, as well as enabling new business models. As merchants see how consumers utilize the data, they can create products and services that better fit those needs and revolutionize the industry.
What Is the Difference Between Open Finance and Open Banking?
As mentioned, Open Finance is the next step of Open Banking solutions. Open Banking is a structured and secure way of for financial institutions to share financial data with other financial institutions or third-party providers through Open Banking APIs.
Open Finance broadens the benefits of Open Banking by applying its benefits to common financial tools and services. Bank-verified data can be used to extend the scope of the Open Banking model to and make financial processes more tailored and efficient. In turn, this makes traditionally tedious financial processes like investments, pensions, mortgages, insurance claims, and more, increasingly efficient, accurate, and personalized.
Top Open Finance Use Cases
With more sources of data, Open Finance can provide the leverage to build new financial products in a wide variety of industries and applications.
- Personal finance management: Consumers can better understand their own financial data and then act on the information.
- Commercial wealth management: Businesses, like individuals, can examine how they use financial products and determine ways to improve operational costs.
- Loans and mortgages: Using different financial tools enabled by Open Finance, consumers can boost their credit score for better rates, as well as find the best loan provider.
- Accounting and treasury automation: With more accurate data, it minimizes the chances for accounting errors and reduces the stress involved in the process of managing finances. Additionally, many CFOs find that Open Finance is integral to liquidity management.
- Other uses for Open Finance include insurance, pensions, and BNPL (Buy Now, Pay Later).
The Role of Data in Open Finance
There are a few methods of data sharing, including Open Finance APIs. These applications or codes enable financial institutions and merchants to set up secure transactions and share financial information with other parties. APIs eliminate the need for screen scraping for a more secure, direct connection. These direct connections create higher security, faster transaction speeds, and higher connection success rates.
Another method is Open Authorization or OAuth. It is used selectively to gate when financial institutions can access consumer data. This means consumers have complete control over when and who accesses their financial information.
Open Finance is one of the most secure data-sharing methods since it does not rely on older methods like screen scraping. Screen scraping is a closed banking tactic that requires consumers to share their login credentials so that third parties can access the data. Those credentials can then be stored. By using Open Banking technology, Open Finance allows merchants to access consumer financial information that is needed to perform a task, without needing to store sensitive data.
How You Can Utilize Open Finance
As one of the leading methods in financial services, Open Finance can change how you view your money—now, consumers can make their financial information work for them. It can provide reliable access to financial data and secure sharing with third parties, making Open Finance the way of the future. Take charge of how your data is shared and gain valuable insights into daily transactions to better manage your finances. Companies can work together to build and offer solutions, and consumers can control access to their financial data.
With more secure data sharing and a more comprehensive view of how consumers and businesses use financial tools, Open Finance takes Open Banking solutions to the next level.
Open Finance and Trustly
Trustly is committed to democratizing finance and the continued progress toward an Open Finance ecosystem. We harness Open Banking technology to securely source bank-verified data, which acts like the engine for Open Finance solutions. We've spent over a decade perfecting our technology and establishing trusted relationships with financial institutions, merchants, and consumers across the globe. You can learn more about how Open Banking can help you build a competitive edge by scheduling a demo.