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Is Open Finance Open for Business?

In Europe, open finance is considered the younger sibling of open banking and is also one of the buzzwords of the moment. In other regions of the globe, open banking is the central piece of a bigger picture: open finance. But what does open finance actually mean?

Open Finance: What Is It and Why Is It Relevant?

Open finance is a natural evolution of Open Banking (fuelled by PSD2 in Europe), it is another step on the road to an Open Data ecosystem, where utilities, telcos and health information are connected for the benefit of the consumer. This is driven by innovations in technology, business models and the regulatory environment in payments, financial services (investments, lending) and insurance.

What Is the Opportunity of Open Finance?

The opportunity exists and has reached the regulators’ eye. At the end of 2020, the European Commission published a new document on the new “Digital Finance Package”, which aims to pave the way for a European financial data space, with new ways of channelling funding to SMEs and better financial products for consumers.

Open finance will likely improve the API game, as the API quality has remained a delicate subject between fintechs and banks.

What Is in It for SMEs?

There are plenty of use cases for open finance. During these unprecedented times, being able to access a wider range of financial products like funding and cash management has – for many struggling SMEs – meant the difference between survival and closure.

Between bookkeeping and payroll, it can be challenging for small businesses to organise and track their finances. Thanks to innovative solutions in Open Banking and FinTech, the open API data enables account aggregation, better financial management, the ability to credit check customers and to integrate lending and accounting applications. There are several benefits for SMEs: access to faster payroll, simpler expenses management, invoicing, and budgeting. Accessing credit – a big headache for SMEs – could also be made easier through open finance.

 

Willingness to pay for open banking services

Source: KPMG UK (2018)

Thanks to innovative solutions in Open Banking and FinTech, the open API data enables account aggregation, better financial management, the ability to credit check customers and to integrate lending and accounting applications.

 

However, the benefits do not stop there – personalisation, wider choice and easy comparison of products and services. By making financial data available to FinTechs, SMEs can be made aware of products that may be better for their needs which they would not be previously aware of.

Continuing to open up the ecosystem will allow other players to join the wave of open finance as the barriers of entry will be lower. This will benefit not only consumers but also SMEs, which will have a wider range of products and services on offer. As always, reaping the benefits of open finance will not be something that happens overnight. The success of the solutions presented will lie in the combination of FinTechs working with the various players in the open finance ecosystem, as well as complying with regulatory requirements.

 

Take care and don’t forget to check out our solutions!

João Parracho – Marketing & Communications Manager

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