Banks have been consistently trying to digitise banking channels and products to allow consumers ease of access to what they have to offer for years.
Open banking has successfully profited from customer payment data that allows them to function within the virtual interface at a lower cost, with things they’re familiar with, and experience new products they never thought possible.
This has worked as a building block for technological advancement and paved the way for significant changes through open finance by using information and data to kickstart a new era of innovation.
Open finance, which is the next step of open banking, will drive a significant amount of change and give consumers so many choices than they’ve ever had before.
What is the open finance framework?
Open finance is a term used to describe the growing trend of financial technologies that allow for more open and accessible ways of exchanging and investing money.
This can include everything from online banking and investing platforms to cryptocurrencies and blockchain-based technologies.
What is the difference between open banking and open finance?
Open banking refers to the use of open application programming interfaces (APIs) that allow third-party providers to access a bank’s customer data and initiate payments on their behalf.
This allows customers to shop around for the best products and services and manage their finances through a variety of different channels.
Open finance, on the other hand, is a broader concept that encompasses all financial activities and services. This includes not only banking products but also:
- Insurance
- Pensions
- Investments
- Other money-related management tools
The key feature of open finance is using open data standards for all financial transactions that allow technology providers to create new applications or enhance existing ones.
Open banking and open finance are often used interchangeably, but there are some key differences between the two concepts.
Open banking is typically seen as a way to make the financial system more efficient and accessible.
In contrast, the latter is viewed as a method to create new products and services that can compete with traditional financial institutions.
Why should companies prepare for the open finance framework?
Open finance is the next frontier in the world of finance.
It has the potential to improve the efficiency and effectiveness of financial markets by promoting transparency, liquidity, and innovation.
For businesses, this means that they can access capital and liquidity more effortlessly, making it easier to grow and scale. Preparing for open finance, therefore, makes good business sense.
Related Read: Why Singapore Is a Magnet for Fintech Companies
What are some important technologies that enable open finance?
Certain essential technologies have helped turn open finance into a reality for companies. They include:
Blockchain
One of the key technologies that make open finance possible is blockchain.
Blockchain allows for secure and transparent record-keeping, tracking all financial transactions from one party to another.
This makes it easier to verify ownership of funds and also helps protect against fraud and counterfeiting.
Related Read: Singapore Income Tax Treatment of Digital Tokens
Smart contracts
Another critical technology that enables open finance is smart contracts.
Smart contracts are digital agreements between two parties, written in code and stored on a blockchain.
These contracts can automatically execute themselves when certain conditions are met, making them ideal for financial transactions.
Distributed ledgers
Distributed ledgers have helped enable open finance by providing an immutable and transparent record of transactions.
This has allowed for more secure and efficient peer-to-peer transactions, as well as the development of new financial products and services.
Creating services that accurately depict today’s lifestyles with open finance
The buzz on the streets is all about looking beyond open banking and focusing on the vast potential of open finance.
This is created using research and user data to generate an in-app service experience that adapts, mirrors, and understands its users’ ever-changing needs and lifestyles.
For example, the BNPL (Buy Now, Pay Later) scheme reflects how younger users prefer to shop online, allowing them to buy and return what doesn’t fit, rather than taking on tons of debt.
Behaviour-based services that allow the algorithm to read and understand how a consumer uses the app and manages finances are just the start.
The seamless integration of non-financial companies adopting financial services gives rise to a merger system called embedded finance that has revolutionised the way we see and interact with money and businesses alike.
Embedded finance service providers are increasing daily and are slowly expanding their empire to look further than just transactional businesses and retail. We will soon be able to witness further growth into open retail and open insurance.
The streamlined flow of the market is also getting bigger because of the customer data that flows through open banking channels and is thus more diverse with the addition of more people.
This gives rise to new opportunities for developing services that will retain the current customer pool and expand it.
A few of the many examples include personalised mortgage and better risk scoring.
Are you ready to get on board?
The opportunities provided are stark and massive in quantity. It offers exponential potential but capitalising on it is not an easy feat.
Any organisation must be ready to ride the waters into the future.
Keeping all this in mind, is your company:
- Capable of managing and ingesting tons of data
- Equipped with agile architecture to facilitate event streams and manage microservices
- Equipped with the proper channels to develop digital marketing strategies and developer-friendly portals
- Capable of managing an operating model for customer support and new skills
- Has a delivery model to respond to negative and positive feedback whenever necessary
- Has a third party management that forms a bridge between the partnerships
Checking off these elements in your box will put you ahead, if not at the top.
Open finance is only the start of more to come
Being an active part of this innovative new movement that creates a new wave of services for the future is exciting.
The world is changing rapidly, and the future of banking is happening as we speak. Organisations need to adapt quickly and mobilise their approach towards open finance.
Organisations will always be quick to seize market share and revenues while supporting their customers and maintaining trust as the data becomes more open. Get on it while you can!
FAQs on Open Finance Network
- Some examples include:
- The use of blockchain technology to issue and trade securities
- The use of big data and artificial intelligence for risk management
- The use of crowdfunding to finance small businesses
- It can help businesses keep track of their finances and improve their financial decision-making.In addition, open finance can also help businesses tap into new markets and find new investors.
- Some problems companies may face are:
- Regulatory uncertainty
- Security worries
- Lack of a standardised approach
Hear from our advisers on using financial technologies!
Looking to enhance your business through open finance and other essential financial technologies? Listen to what our team of professionals at InCorp has to advise!
About the Author
