Why do financial institutions get to decide who you share your data with and how much of your own data you’re allowed to access? Data ownership is a hot topic at the moment, and so is open finance — for good reason!
Open finance advocates that consumers have ownership of their financial data so they can expose themselves to more financial services and an array of other benefits. The fundamental principle of open finance is this: you get to share your financial data with whoever you want because it’s yours! Open finance aims to give consumers power over their financial data and shines the spotlight on consumer choice.
How does it work?
Open finance is a ‘new’ concept that started with the introduction of open banking by the EU in 2015. It empowers consumers to decide who they want to share their financial data with and lays out responsibilities and actions financial institutions must take to make this secure and user friendly. It means users have more control over their financial info, they aren’t limited by their bank and they don’t have to provide their passwords to third party apps in order to use their services. At the moment, open banking applies to a consumer’s current account, but open finance extends this to other types of accounts too.
How does it benefit me?
In simple terms, your bank holds your financial data and you have no control over who you can share this with. Since it’s such a schlepp to access your data and the limited amount of it that’s available, financial technology (fintech) companies can only offer you so many services. Open finance gives you control, enabling fintech companies like 22seven to use your financial data — with your consent — to provide you with more services that allow you to manage your money easily and efficiently.
Once third party apps understand a consumer’s spending behaviour and financial history, the services they provide become more tailored and beneficial:
- Payments are made safer and cheaper through increased competition. They also become more efficient and connected.
- Consumers have access to more financial tools. This includes several financial services aimed at helping them manage their money, save, invest and more.
- Small and medium enterprises often experience problems like insufficient access to credit, capital and important financial services products and products, because they’re unavailable or just too expensive. Open finance creates an environment where these restrictions can be lifted.
- Other services become faster. Think about the admin you go through when taking out a loan. Instead of you having to collect all your data and provide it to lenders manually, they have automatic access to your data — with your explicit consent — making it easier for everyone involved.
So, in conclusion, open finance empowers the consumer to choose who has access to their financial information and the effect of this may be better products at lower costs.