Thanks to PSD2 in the EU, and open banking in the UK, Europe has been leading the way with its open banking initiatives. This significant development represents the beginning of a journey to democratise the financial services industry by allowing third parties to access current account transaction information and initiate payments. However, there is so much more to do. In order to serve customers more holistically, access to additional financial products is needed beyond just current accounts and that’s why we are currently witnessing a movement towards open finance and open data.
Open finance goes way beyond open banking to incorporate other products – for example savings, pensions, insurance and mortgages. There is growing support for this movement globally, as evidenced in the Hong Kong Monetary Authority’s open banking framework and also in the UK where the financial regulator is running a consultation on open finance at present. In addition, the wider open data economy in Europe received a recent boost with the publication of the EU’s European Data Strategy[i]. The Data Strategy’s aim is to prepare the EU as a leader in the data-driven society where data is allowed to flow freely across the Single Market for the benefit of businesses, researchers and public administrations.
Open finance is leading the way…
There’s no doubt that open banking has made a strong start by allowing third party providers to access and harness financial data in order to build innovative and much-needed products and services. Whether that’s account aggregation, personal and business finance management, or better credit scoring and account-to-account money transfers. The appetite for these new solutions is strong and Europe is undoubtedly leading the way when it comes to confidence in these new technologies. Only recently it was announced that the UK has smashed its fintech investment record, notching up $4.9 billion of capital raised, surpassing the $3.6 billion the previous year and catapulting the country to second in the global rankings for VC investment.[ii]
However, in a fast-paced digital environment where fintechs and agile start-ups are disrupting the financial services sector across Europe at lightning speed, open finance is the logical next step on from open banking. Open finance is expected to complete the overall ecosystem by incorporating services for products such as savings, mortgages, credit, investments, pensions, insurance.
For both small businesses and individuals this will allow for more sophisticated and holistic finance management, automated switching and renewals, more accurate creditworthiness assessments, and more. This could help people to make better decisions about their financial situation, provide them with access to cheaper finance through transparency and comparison sites, as well as improved pension plans or debt advice. Importantly, for the first time, it could also provide access to financial services for those people currently considered to be financially excluded.
… and open data is high priority for the EU …
Europe is not just leading when it comes to open banking and the desire to be one of the pioneers of open finance; a data-led economy is also high priority. The EU Commission just recently published an ambitious Data Strategy for the EU Single Market which not only includes open finance but also a whole host of examples from other industries and sectors, such as[iii]:
- Jet engines filled with thousands of sensors which can collect and transmit data back to ensure efficient operation
- Wind farms using industrial data to reduce visual impact and optimise wind power
- Real-time traffic avoidance navigation can save up to 730 million hours and €20 billion in labour costs
While the European Data Strategy suggests recommendations rather than prescribing regulations, the objective is to create an attractive policy environment by 2030 in which open data can thrive thanks to improved standards, infrastructure and data availability.
The Data Strategy paper sets out that the main drivers for the open data vision are to create a new global market leader in data and to foster the European Green Deal. In order to meet the goals of becoming carbon neutral by 2050 and more competitive, the EU Member States will need to invest in data openness in multiple industries such as data literacy, artificial intelligence, cloud, blockchain and Internet of Things (IoT). Data accessibility is a key capability to get there.
The drive to achieve an open data economy is very diverse and ambitious but, according to the Data Strategy paper, Europe is already strong in manufacturing and work is already happening in areas such as:
- Finance: An EU Digital Finance plan will be published in Q3 2020 to promote common technical API standards, and go beyond the scope of PSD2.
- Health: There is a goal to develop a legal right for patients to access and transmit their personal health data to third parties, and access to health data for research to develop more effective health applications.
- Mobility: Work is happening to make existing and future transportation system data available for the development of intelligent mobility systems and smart city initiatives (car data, public transport, aviation).
- Energy: The aim is to increase competition and efficiency in the energy market through access to interoperable meter consumption data and foster smart home applications.
It's time for a redefinition of banks
Banks across Europe are nearing the completion of PSD2 regulatory compliance, and their focus is now on developing innovative business models and monetising the open banking opportunity. This must include the creation of a clear vision for the role of open data, as in the future delivering good customer experience through technological capabilities will become even more important in attracting and retaining customers. Banks could lead the way in an open data cross-industry ecosystem; for example at Mastercard we’re already seeing banks analyse agricultural data to optimise liquidity demand and manage the supply chain for farmers. They could also play an integral role in defining data privacy, rules for ethical usage of data, API standards and infrastructure. Open banking has got us off to a positive start, but it is merely paving the way for the open data revolution.