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Leveraging the opportunity of Open Finance

Secure data-sharing across financial services is critical for the UK’s to retain its fintech and open banking lead, CFIT’s CEO  Ezechi Britton writes

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The UK's fintech sector may be world-leading, but it faces tough competition elsewhere. 

To maintain its competitive advantage, take the lead on global standards and open the door for UK firms to export and scale overseas, there is a critical need to continue to innovate. 

Open Finance represents one key battleground where the UK can seize first mover advantage. By applying the principles of Open Banking-style data-sharing more widely across financial services, we can put greater power in the hands of consumers and businesses. 

In addition, increasing the volume and quality of data available to the financial sector would allow firms to offer more tailored products and services to their customers, paving the way for further innovation and stronger economic growth. 

These benefits are particularly critical at a time when consumers and small to mid-sized enterprises (SMEs) are reckoning with cost-of-living and cost-of-business pressures, compounding the enduring issues of limited access to credit, unstable finances and insufficient planning for the future. 

Amid a fast-changing economy, people are struggling to organise their finances. More than ever, they need all their financial information available so they can access the best financial services suited to their personal circumstances. 

Given our founding mission to drive forward financial innovation in the UK, Open Finance was therefore the natural choice as the focus of our inaugural coalition. 

Since earlier this year, our group of more than 50 industry players has worked to identify the key barriers to Open Finance’s implementation. In addition, for the first time at this scale, they have examined specific use cases for Open Finance – looking at improving credit decisions as a starting point. 

This will pave the way to unlocking additional data to inform all sorts of financial products, and ultimately deliver better outcomes for consumers, SMEs and the financial services industry.  

What have we found so far? 

We have now published a Progress Update on what our Open Finance coalition has discovered and achieved so far. That work is still ongoing, but clear findings are already beginning to shine through. 

First, it is evident that insufficient data-sharing is impacting financial outcomes for consumers and SMEs.  Looking at credit as a starting point, we have found that decisions are often based on a narrow range of datasets, giving an incomplete picture of creditworthiness for consumers. 

This is just as detrimental for smaller businesses, which have sometimes been assessed on the basis of their directors’ personal credit records, leaving them exposed to the same data-quality shortcomings that can affect consumer credit decisions. 

It follows as a second point that expanding the number of datasets available to financial institutions can improve consumers' and SMEs’ access to finance. There is a wider universe of available data that can provide better insights into customers’ financial behaviour if it is made accessible. Banks and other financial institutions would have more accurate data to make lending decisions easier, thereby potentially increasing lending volumes as well as driving broader economic growth. 

Improving consumers' and SMEs’ access to financial products is consistent with the broader drive to ensure that firms in the UK put their customers’ needs first, as required by the FCA’s Consumer Duty, brought in earlier this year. 

Importantly, we have already identified, ranked and prioritised additional datasets that could be used. 

We found a vast quantity of additional financial and non-financial data is inaccessible or underutilised in more than 30 additional datasets, including more granular information on consumers, including mortgage accounts, rent, utilities, council tax payments and buy now, pay later (BNPL) transactions. 

Our coalition is developing an example framework to simplify data integration and data access so that this full range of Open Finance datasets can be accessed by a single API (application programming interface) library. 

That will allow banks, fintech firms and other financial institutions to pull all the necessary data points they need quickly, efficiently and securely. 

A final, particularly crucial point is that when we unlock these datasets, we must ensure customer consent lies at the heart of the experience. As we expand the universe of available datasets, we need new ways to enable individuals and companies to keep control of their information in a scalable fashion. 

As a priority, we should be looking to develop an example framework which enables the secure sharing of data with the relevant parties’ agreement in a way that reduces cost, saves time and limits friction.  

What comes next? 

Our coalition is building proofs of concept with our partners to validate this work, showing how the industry can design new products and services using Open Finance. 

Early next year, we will publish a strategy for the rollout of Open Finance in the UK with recommendations for industry, a phased approach for unlocking new datasets and a library of technical resources for industry to use. 

The potential benefits of Open Finance are enormous. Enabling secure data-sharing across the wider financial services ecosystem has the potential to assist important regulatory outcomes, such as the FCA’s Consumer Duty. 

Just as importantly, smarter use of data will allow consumers and SMEs the opportunities to consider different or additional financial providers, supporting people to save money.  

The UK acted early to establish standards for Open Banking, and we have since set the pace and direction in this area internationally. 

We have a similar opportunity to lead innovation in financial services on a global scale with Open Finance. Collaboration and momentum on this mission are key. 

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