Open banking today, open data tomorrow
The open banking movement is a small part of a seismic open data trend — born from the premise that consumers own the data that their financial service providers hold. However, this should apply to all types of data.
The open banking movement is a small part of a seismic open data trend. Open banking was born from the premise that consumers own the data that their financial service providers hold.
However, this should apply to all types of data. Not just financial. Why are banking and financial services the first sector to experience this shift? What’s next? And what does the road towards open data look like?
Open banking puts control of a consumer or business’ financial data into their hands. In decades past, sharing financial data with third parties was either impossible or involved unavoidable friction. Attitudes have shifted, and so too has regulation — albeit slowly. As it becomes easier to share financial data, we’ve seen an upswell in innovation around financial technologies.
While open banking is a global movement, it varies across different regulatory environments. However, there is a lowest-common denominator: unlocking everyday checking or current accounts.
PSD2 legislation in Europe seeks to achieve this openness. And the number of third-party providers that benefit — and, in turn, the value for the end user —is almost boundless.
Still curious about open banking? Read more here.
You could say that in 2021 open banking has officially entered the mainstream. This is due to the movement’s maturation overall and awareness as companies such as trading platform (aka brokerage industry disruptor) Robinhood receive increased media coverage. Yet, the question remains, why are banking and financial services the first to experience this open data shift?
If we think about what data are most important to consumers, two areas come to mind: healthcare and financial.
For obvious reasons, we need to be able to share our healthcare data with the appropriate parties. Given the nature of healthcare, those that could use the data are likely already able to receive it with little friction. Think hospitals, hospices, specialty practices, etc. They are all part of the public healthcare system. Healthcare data, however, is inherently sensitive, so it will likely remain within the existing circle of incumbent healthcare institutions.
Financial data is the other important dataset in our lives. Thus it makes sense that banking and financial services are early beneficiaries of this open data shift. The global financial crisis was instrumental in spurring the shift in attitudes, and later, legislation that fuels open banking as we know it today.
Open finance is simply an extension of open banking. The idea is to give consumers the ability to share access to all their financial data with third parties. This may include — but is not limited to — mortgages, savings accounts, investment accounts, and retirement accounts.
The energy and fanfare around open banking thus far are primarily generated by the democratization of one type of financial data. As the scope looks set to broaden to opening access to all financial data, the scale of the opportunity becomes vast.
Imagine a service that tracks mortgage rates in real-time and automatically switches to the best rates available in-market without requiring any input from the mortgage holder. Such a service would reduce the total amount of interest paid over the lifetime of the mortgage and create incredible value for the mortgage holder. This example illustrates the power of open finance.
The number of potential use cases enabled by open finance is tremendous. The opportunity they represent is too compelling for innovation not to upswell, as evidenced by the number of new entrants to the market.
Opening data across all sectors
After banking and financial services, what are the next logical candidates for open data disruption? Australia is betting that it is the telecommunications and energy sector. Outlined in their consumer data right (CDR) project, they have affirmed open data as a concept. After banking and financial services, CDR will be applied to telecommunications and energy — two sectors that represent significant discretionary spending. The goal: better prices for customers and more innovative products and services.
It makes sense. Mobile phones are not going anywhere, nor is our need for energy — even as the world attempts to transition to a zero-carbon economy. Aside from the potential savings and efficiency gains, open data brings the potential to fundamentally change how we interact with the world multiple times over.
An open data end-state
Given the heterogeneity of regulatory environments globally, it’s unlikely there will be a uniform open data standard. What is likely are regional regularity frameworks that legislate the need for service providers to give customers the ability to share access to their data. There will be an incredible opportunity for players that can provide a service that ensures interoperability across regions.
This end state is, optimistically, decades away. In the interim, we anticipate a surge in public-private partnerships and working groups as leaders from across the economy sit together and define a path for open data in their respective regions.