Are We There Yet? From Open Banking To Open Finance

June 1, 2022
Fragmentation and varying sets of standards have hindered open banking’s functionality, panellists agreed at EBADay 2022 in Vienna yesterday, as they shared their visions for open finance.

Fragmentation and varying sets of standards have hindered open banking’s functionality, panellists agreed at EBADay 2022 in Vienna yesterday, as they shared their visions for open finance.

As open banking becomes increasingly baked into the banking system in the UK and the EU, open finance has become a buzzword for where the industry can go next for opportunities.

Last year, the Financial Conduct Authority published its response to a Call For Input on the matter and the EU has recently begun to lay the ground work for a long-awaited legal framework, with a public consultation open until July this year for feedback.

Yet, despite growing momentum among regulators and fintechs, sources have often shared their concerns with VIXIO about how easy this transition will be.

Much the same as with the second Payment Services Directive (PSD2), banks are tentative about their participation in open finance.

Part of this may be down to the fear of disintermediation and that they will become less relevant to customers once open finance is integrated into the financial system.

“Today, open banking actually requires a bank account. I’d love to envision a world with open finance where we can deploy to billions of consumers and small business owners that don’t have access to financial services today,” said Michael Niczyporuk, Visa’s global head of open banking.

It is the customer, whether a consumer or a small business, who is at the centre of financial data, he said. “That starts with that customer having an undeniable right to their own data, through a channel of their choice, and it extends to giving that customer a right to give explicit form consent to a third party to access their data.”

“Ultimately, it is about empowering a range of ecosystem players.”

Paul Thomalla, global head of payments at Finastra, was more tentative about the realistic levels of progress that open finance will make in the coming years.

“Open banking isn’t particularly well structured,” he said, adding that this was understandable as for years prior, banking was done in a relatively similar way.

When you get to open finance, he continued, you’re talking about a world where everything is connected. “Well, you just try paying your gas bill on a Friday evening at 7.”

“We’re running very heavily and quickly, but we need to remember that there are many processes and steps to go through,” he said. “I don’t think we’re quite ready yet for the whole of it.”

It is likely that open finance will be achieved eventually, he speculated.

Mark Lohweber, chief executive of CoCoNet, a German corporate banking fintech, added that fragmentation is a persistent problem for open banking already.

“What we see currently is, even in one country, a lot of open banking architecture is built bank by bank,” he said.

The fintech would love to take advantage of connectivity between the banks, yet when looking at what has been created, it is not the same from bank to bank. “This, in the end, will only lead to more costs. We’re always asked about connecting systems and we have to say ‘ok, but we can’t re-use anything that we have done with another bank’.”

There is a requirement to standardise, Lohweber advocated, stating that he was “highly in favour of this.”

“The beauty of standards is that there are so many of them that you can choose the one you want,” Thomalla quipped, adding that this is par for the course in the industry, considering that SEPA was a standard for over a decade before being mandated.

The industry needs to take a deep breath in, he said. “I believe that standards are good but you can’t have many. We’re quite a way away from doing that.”

“If we want to genuinely get to embedded finance, we do need standardisation. I just feel that at the moment there are too many best practices from different rival communities that are unhelpful in getting us there.”

As the European Commission prepares to propose its Open Finance framework, as well as revisions to PSD2, it is likely that they may be thinking the same thing, considering the issues that third-party providers have had grappling with various APIs throughout the trading bloc.

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