Imagine a scenario where people have complete control over their financial lives? Loans, statements, accounts, all in one place. A new development in the financial market is Open Finance, a kind of evolution of Open Banking. Banking as a Service has much to gain from this new model.
The expectation is that Open Finance will promote greater diversity in the financial market, allowing more freedom for financial institutions and the end customer.
Open Banking and Open Finance are here to stay and can generate new opportunities, opening the door for a wave of innovations.
What is Open Finance?
Open Finance sets the standard for how banks and other financial institutions share data. It’s a well structured technological solution designed to facilitate client finance control.
The purpose of Open Finance is to increase banking possibilities and streamline the entire process by sharing user history.
But don’t think this stops with banks. Brokers, foreign exchange companies, pension funds, and other economic systems can also benefit from Open Finance.
Open Finance is the evolution of Open Banking
While Open Banking promotes changes in the relationships between banks and fintechs, Open Finance extends these changes to the entire financial market.
From: Open Banking
Open Banking is the system that allows customers to share data between banks and fintechs.
This makes it so that customers no longer have to start from scratch when switching from one bank to another. It’s very similar to transferring your medical documents over from one doctor to another.
The 1st phase of Open Banking – now called Open Finance – data of participating institutions, their service channels, products, and services were opened – such as checking accounts, savings accounts, payment, and credit operations. The initial phase does not involve sharing customer data.
The initiative is extremely technological complex. And no wonder, for data integration to occur, both access and use of data must follow strict security guidelines. This involves authentication, user consent, and management of exchanged data.
To: Open Finance
Open Finance is part of the same system as Open Banking, but it also covers other companies within the financial sector that are part of this ecosystem. Institutions such as investment platforms, insurance brokers, and pension funds will also be able to take advantage of sharing client data.
Open finance is not just another regulation. The new system is also an opportunity to promote changes, such as:
- Creating new business models
- Customer-centric products and services
- Effective use of data
- Greater customer confidence
- Digital transformation
- Process optimization
- Improve competition and partner relationships
The Open era is about Banking as a Service
Banking as a Service, or BaaS, is a solution that allows companies that are not part of the financial services market to also act as digital banks, without having to become one.
While Banking as a Service allows any company, in any segment, to create its own digital bank, Open Finance expands the range of offered products.
Both Banking as a Service and Open Finance contribute to creating unique financial products and experiences for customers. In Banking as a Service, this solution allows non-banking companies to start operating in this sector.
If we apply Open Finance to BaaS, access to banking information will allow us to create products that are even more consistent with the reality of target audiences, attracting new customers. The open banking system allows users to move freely from one institution to another.
This makes it possible to verify which solution is best for you at that particular moment. Once found, users can easily migrate from one to the other or purchase only a specific product or service, without the barriers that existed before.
Impacts of Open Finance on BaaS
Financial services have been historically flooded with bureaucracy and not user-focused. With the adoption of technology in the corporate world, especially within fintechs and digital banks, this perspective began to change.
Today, we are facing a complete digital transformation that is completely changing the financial market. The pandemic accelerated this process, and we’ve taken important steps towards a financial revolution.
Institutions need to remove obstacles and take advantage of new business opportunities and focusing on user experience is the best way to do so.
With Banking as a Service, institutions will establish themselves as benchmarks for innovative financial solutions. This is true for banks, fintechs, and any organization with a portfolio of relevant customers. Open Finance also encourages companies to come together to offer competitive product packages that can complement each other. It’s a sea of opportunities, are you prepared?