Open Banking to Open Finance – Exploring the benefits, risks & opportunities

Open Banking becomes an older topic for now as Europe has been talking about it for the past two years. Open Finance is currently a hot topic in the financial industry, but what exactly is Open Finance?

“Open Finance” refers to any Open Banking activity that extends beyond the regulatory scope of PSD2’s Access to Account provisions. As a result, data sharing and payment initiation via APIs that extend further into payment accounts, payment services, and payment service providers defined by PSD2 (Payment Service Directive 2) come under the scope of Open Finance.

Regulatory interventions set up the groundwork for Open Banking. Because of this, the Open Banking market is evolving, and new products and services are being introduced as customer adoption of these new payment methods are increasing. Open Banking facilitates the sharing access of customer financial data more securely to make life easier. The Open Banking capabilities developed by firms ranging from incumbent to challenger banks and FinTech firms have proven to be effective in delivering consumer and market utility. The distributed technology has laid the groundwork for Open Finance to expand for even greater customer benefit.

Open finance extends beyond the data and services provided by the banks to encompass customers’ entire financial footprint. A trusted third party could access financial data related to pensions, taxes, and insurance with consent from the customers. This paves the way for more tailored consumer services, including payments and other financial products.

Third-party providers can use open application programming interfaces (APIs) to build applications and services that add value to consumers, by providing exclusive data-driven insights, streamlining the user experience, or simplifying payments.

How Open Finance differs from Open Banking?

Till now, the distinctions between Open Banking and Open Finance are not clear. However, we can identify some differences based on what is happening around the world, whether through regulatory actions or market-driven initiatives:

  • API Providers (ASPSPs): In Open Banking, banks and other financial institutions are considered as the API providers. In Open Finance, other account holders such as insurance companies, pension funds, and wealth managers, can provide Open Finance APIs.
  • API Clients (TPPs): Open Finance APIs can address a variety of ‘clients,’ including TPPs regulated by a National Competent Authority (NCA) under PSD2 and organisations that are not regulated by an NCA.
  • Security: NCA-issued authorisation numbers, PSD2 eIDAS certificates, and/or scheme lists may or may not be used for Open Finance client identification.
  • Contracts: Commercial contracts between the API Provider and the API Client may be needed for Open Finance APIs.

The Regulatory Framework for Open Finance

The European Commission issued some correspondence on the EU (European Union) Retail Payments Strategy in September 2020. It established several objectives for the EU’s Digital Finance Strategy. One of them was to promote data-driven innovation, specifically improved data access and data sharing within the financial sector. The Commission also acknowledges the need for an Open Finance Framework by 2024 and plans to propose one in mid-2022. 

There is a contradiction in defining Open Finance as the non-regulated, value-added space because services introduced today as Open Finance will no longer be Open Finance if they are regulated later. That could be a problem at some point of time. 

Open Finance access is allowed, provided that only the data owner or a third party authorised by the owner has access to the data. Furthermore, due to the risks and sensitivity of financial data, there must be certain level of control over data access, which can be carried out through customer consent, contractual agreements, qualified certificates, or other means. Open Finance is an ethical process because it is transparent and effective for all parties involved. 

Account Servicing Payment Services Providers (ASPSPs or banks) and Third-Party Providers (TPPs) or regulated entities are not the only ones who can take part in Open Finance. It applies to financial institutions (e.g., banks, financing companies, insurance companies), as well as merchants, utility companies, corporates, Small and Medium-sized Enterprises (SMEs), and individuals. 

Advantages of Open Finance

Regulators and industry stakeholders acknowledge the importance of Open Finance and outline some of its expected benefits:

  • Improves user experience by supplying customised products and services.
  • Enables wiser financial decisions and improved financial management.
  • Improves efficiency and productivity for big corporates and small and medium-sized businesses.
  • Increase competition among financial service providers, fostering innovation, new service development, and increased demand.

What is the future of Open Finance?

Open Finance is the logical next step in applying the Open Banking concept to a much broader range of financial products and services, including insurance, pensions and even in other domains such as healthcare and more. The opportunity to improve savers’ overall financial well-being is enormous. However, much work is still to be done to get it off the ground, beginning with regulations, standardisation of the technology, and the development of new use cases to show the benefits it can provide.

We are excited to see what the future holds for Open Finance in general, as well as the innovations it may bring to the pensions industry to improve consumers’ insights, decision-making, and financial well-being.

From Open Banking to Open Finance and then to Open Data – New gateways

Open Finance is not the end, it is the beginning of financial industry evolution. It brings us closer to Open Data and a data-driven world in which all the industrial ecosystems are interconnected.

As a result, industries must embrace and incorporate Open Finance into their culture. Open Finance is pushing the industries into new innovative water, and those who swim in it will be better positioned to succeed in the upcoming Open Data reality.

Open Data services facilitate the customers to access and share their financial data with the approved third-party providers (TPPs), fostering the innovation of ground-breaking products and services that aid customers in better engaging with their finances, making empowered decisions, and accessing tailored products and services. Open Data is being utilised in the Account verification process, Credit checks and other PFM platforms.

Open Data brings more advantages to the customers. Some of them are
  • Improved financial decision-making.
  • Increased access to advice and guidance.
  • Better borrowing decisions.
  • Enhanced user experiences.
  • Increased financial awareness.

What are the potential implications of Open Finance?

This would be the debating question in the market currently. Open Finance could reduce costs and increase benefits for customers. A low barrier to entry, achieved through the low-cost reuse of existing capabilities, will secure the ability to bring solutions to market for consumers more quickly.

Open Finance has the potential to reduce fraud, improve financial well-being, expand credit availability, supply more payment options, and enable reusable digital identities. Each of these outcomes stands for a significant undertaking.

The challenge for future work is to identify the priorities where success is more likely to describe collaborative action from the industry players, government, customers, and regulatory bodies. It enables open access to data to identify the possibilities and opportunities around open finance and to set a mandate on what could be done.

By focusing on customer outcomes, we are also in the best position to directly address the issues that most trouble individuals and businesses, and which Open Finance has the potential to resolve.


The industry is already moving forward with several initiatives aimed at achieving the results as part of the evolution of open finance. The emphasis will be on integrating and putting into practice the various initiatives, such as enhanced fraud data sharing initiatives and access to all the available data sources. In other areas, business is showing thought leadership on how Open Finance could encourage entrepreneurial behaviour, for instance, by removing obstacles to the formation and operation of SMEs. 

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