If we talk about the democratization of the financial service industry, open banking has played a pivotal role. The emergence of open finance has promoted greater transparency and diversity in the financial market and has given financial institutions and end customers more freedom.

Open banking will render a ‘one-stop destination’ to the customers where they can have their loans, accounts and statements, all at a single place. Moreover, it will generate greater opportunities for financial institutions and end customers.

In this article, we will have a detailed analysis of open finance and its impact on the money market. Moreover, we will also see why businesses need to gear up for this financial paradigm shift to stay afloat in the market.

Open finance and its necessity

Open finance is a neatly structured technological solution designed to clear the way for client finance control. The main aim of open finance is to synchronize the entire financial process and increase the overall realm of banking possibilities.

Open finance will render a level-playing field to the end customers by broadening the concept of savings, mortgages, pensions, investments, etc. The potential customer benefits include:

• Developing a personal financial dashboard that will allow the customers to give a total view of all their financial arrangements. It will also help them to optimize their financial position easily.
• Open finance will reduce the friction that is caused between financial transactions through auto-renewal and switching.
• Better advice and support to the customers so that they can make more educated financial decisions
• It assesses the creditworthiness of a person and allows financial institutions to lend them money according to their merit.

The journey from open banking to open finance

The open banking system has empowered the customers with the right to share the details of their transactions with any third party. The open banking movement has assisted in rapidly maturing the API ecosystem and has also backed to launch the digital-first banking epoch successfully. This gave a meteoric rise to the AI-based fintech mobile apps that helped people in accomplishing their financial and budgeting goals,

The open banking system has given consumers a gateway to easily hop into new financial services. The fintech landscape is dominated by:

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Now you must be thinking if open banking has escalated this much, what is the need for open finance. The finance sector has just seen the tip of the iceberg, and there is much more to explore yet.

The most important quality of the open financial system is that no one has to begin from scratch. The system allows easy integration of third-party services to deliver extra value to the customers. The financial institutions can also flood the ecosystem with offers from third-party platforms. In addition, it is easier to add new service and distribution models in the mix in an open financial system.

As mentioned earlier, open finance is a one-stop banking system. It assists the customers with faster KYC, more personalized offers, and better onboarding services. Also, as open finance is based on trust-based propositions, it helps in boosting incumbent bank revenues as well.

Open finance offers the customers a total package of financial tools under one roof. The lists of facilities available are:

• Pension funds
• Personalized saving plans
• Checking accounts
• Mortgage offers
• Insurance
• Credit products
• Wealth management
• Investment tools

Thus, it is a clear fact that the journey from open banking to open finance has brought in a platonic shift in the fintech domain. Moreover, this revolution is here to stay and will bring new advancements in the sector.

Impact of open finance on BaaS

It is a norm in the financial service industry that it is more focused on bureaucracy and not on its customers. But now with the increase in access to technology and the expansion of the fintech domain and the digital banks, this whole scenario is beginning to change.

The impact of open finance on Banking as a Service (BaaS) has been impeccable. The system has allowed the banking and other financial organizations to remove the obstacles of bureaucracy and make their work process more efficient and customer-centric.

Banking as a Service (BaaS) has embraced the technology changes and has made constant innovations to increase the level of their service towards their customers. One of the major changes has been the increased inclination towards banking software development. Not only has it made the entire process customer centric, banking software has made banking easy. Moreover, the open finance has also made the financial organizations to render competitive product pages to their customers.

 Digitalization is bringing a significant change in the financial services market and its positive impacts are here for us all to see. Moreover, the ongoing global pandemic has played a role of a catalyst and has made the process of financial revolution take place at top speed.

Thus, it will be safe enough to say that the world of open finance is an open opportunity for business organizations. And it is vital for them to grab this opportunity and sail ahead of their peers.

How open finance will impact common people?

Open finance will be pivotal in the evolution and expansion of personal finance management platforms (PFM). This is because the tech and data-driven financial system will make the platforms cheaper and holistic allowing them to render more competent advice to the customers.

Another positive impact that open finance will have on the common man is that it doesn’t stop only at dashboards or recommendations, etc. There are a range of benefits that the consumers can have through open finance.

Making direct payments: The consumers can make direct payments through their debit or credit card from their bank account. Moreover, the user will have direct access to transaction history and will be able to see everything in detail in real-time.

Recurring payments: If the consumer uses their credit or debit card directly, they may be able to save a lot on combined payments. Thus, in this way, the open finance system can help in making the payment process faster and simpler.

Comparing the utility: The consumers will have access to better deals as they will have exposure to a plethora of different financial service providers. Thus, it will be easier for them to find out how much they will be saving on their current deal and will save a good amount of money in the long run.

Why is it necessary for businesses to gear up for open finance?

Over the years, we have seen platform businesses attract their customers with exquisite and streamlined multi-product user experiences. And if you are wondering what a platform business model is, it can be anything ranging from:

• A theme park
• A co-op market
• An art auction

These are some of the most simple examples of the platform business model. With their amazing value proposition and monetization strategy, the platform businesses have always had the upper hand when it comes to customer retention.

 Banks and other financial organizations, on the other hand, have been a little tight and not comprehensive in rendering basic services to the customers in a faster way. Thus, it is utmost necessary for the finance business organizations to embrace the change open finance is bringing or else they’ll be left far behind.

According to a study, close to 2/3rd (60%) of the banking executives feel that if they don’t evolve, they will lose payment revenues to other non-banking competitors in the near future.

Thus, by including the data from the third-party platforms, it will become easier for the banking organizations to attract new customers. Also, open finance will build new roads to revenue by increasing the customer experience and the chances to build B2B partnerships.

In addition, the benefits of including open finance will be two fold for the banks and financial organizations. They can earn more money charging customers for lending supplied financial infrastructure. Through this, the banks gain access to the customer data and will allow the banks to cross-sell to their targeted customers.

What is next: future of open finance

It will be safe enough to say that open finance is still in its infancy, but its future looks bright and exciting. In leading economies such as the United States, the open finance initiative is majorly driven by the Financial Data Exchange. Open finance has successfully set a common standard to secure access to financial data. And seeing the progress, the market leaders in the US are very much determined to create a more comprehensive financial system in the future.

Open finance will allow much larger access to different products and financial services and has the potential to make a country a superpower in the sector. The key here however remains to take an early bird advantage in this technology after understanding the requirements of the audience.

Open finance: a pathway to more streamlined finance

Open finance has all the potential to pave a pathway to implement fairer finance across the globe. However, it becomes essential for the business organizations to take appropriate steps to lower the risk of bias. In addition to this, they must be open to include the new-age technologies such as artificial intelligence and develop the financial risk management strategies correctly.

As open finance allows the customers to choose the data they share, it will help build an environment and culture of transparency.

Final thoughts

As the financial domain has gone digital, it has become easier for consumers to switch to a new service provider that offers less friction in their transactions. In addition, because of open finance, both the banks and other financial institutions have broken down the complex barriers of integrating data and have made their process more customer-centric.

Open finance allows more customer and market insights to the banks and financial institutions. And it is all fair to put that information into practice for business advancement.

Author Bio 

Ashish Parmar is the CEO of Prismetric– one of the reliable mobile app development companies. He is an enthusiastic entrepreneur who is interested in discussing new app ideas and rich gadget tricks and trends. He admires and readily embraces signature tech business styles. He enjoys learning modern app crafting methods and exploring smart technologies and is passionate about writing his thoughts, too. Inventions related to mobile and software technology inspire Ashish and he likes to inspire the like-minded community through the finesse of his work.

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