We live our lives according to a social contract. We share certain things about ourselves online, like our location, so that we can use incredible tools like Google Maps. We share some of our health data to an extended network so that we can fast-track the admin process if there’s an emergency and we need to be admitted to hospital. Soon, we can look forward to similar benefits when it comes to our money.
Open finance is when information about saving and spending habits is shared with trusted third-party providers to improve the efficiency of the financial sector. By giving consent to your data being shared, licenced providers can offer convenient, personalised products and services. These can be across different segments, such as savings and deposits, lending, investments and more. There are a multitude of benefits, which have already been realised in countries like the UK, Australia, Canada and Singapore: banks can leverage their own data internally to offer better service, and customers are empowered to take control of their finances and gain access to better credit.
But the concept goes deeper than that: open finance also presents the opportunity for everyone to reach financial freedom by positively addressing the imbalances that prevented many South Africans from participating in economic activities in the past.
Fair access for all
Here’s a sobering statistic: an estimated 23.5% of South Africans don’t have a bank account and are therefore classified as “unbanked” or financially excluded. But the more information that’s available about a person’s financial habits, the better access they will have to financial services. Open finance — and the initiatives associated with it — can open the door to safe financial services for this excluded sector of the South African population.
Smaller loan providers that charge exorbitant interest rates have been preying on the fact that traditional facilities such as banks have excluded lending to so many people. And even if a customer has been able to secure a loan through a traditional facility, they might be paying much more for that loan than they need to, due to incomplete or historical data that doesn’t accurately represent that person’s ability to repay the instalments. With open finance, customers who were previously excluded will finally be able to access services that meet their needs and their budget.
Increased competition, better service
Better access to customer data will also allow new service providers to enter the market and increase the competition for the current market players. The customer will benefit, since service providers will no longer be able to rest on their laurels. Only those that offer fair pricing and quality products will survive. Increased access to a customer’s financial information will also allow providers to offer more relevant services that are tailored to the individual, and not to a generic population group.
Ultimately, open finance will give everyone fair access to affordable, personalised financial products, hopefully empowering more South Africans to manage their risk, grow their wealth and take control of their financial future.