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Open Finance means… open for business

Despite the understandable uncertainty caused by Brexit, recession, COVID & climate change, Britain’s Fintech sector is well placed to use the rise of Open Finance as a springboard for innovation and growth.

Ever since the 52% spoke in June 2016, fears have been raised about the impact of Brexit on the UK’s ability to maintain a leading role on the world financial stage, as a trading centre and as a hub for Fintech innovation.

As we have navigated the long and winding road out of the EU, optimism surrounding the UK’s Fintech prospects have fluctuated. Many have been very pessimistic, citing restrictions in talent flow into the UK, corporate relocations into Europe and a disinclination for inward investment as drivers of an inevitable diminishing role for the City on the European and world financial stages.

Moreover, in truth, Brexit is just one of many issues facing UK (and global) financial services providers. COVID-19, while first and foremost a health tragedy of epic proportions, is segueing seamlessly into a global recession and, when you add the potentially existential threat of global climate change and the regulatory minefield and economic dampener that Brexit represents, consumers and the businesses that serve them are under huge pressure.

And yet, there is cause for optimism. When it comes to Brexit, some, like Stripe billionaire John Collison, and Cazenove Capital’s, Tom Walker have remained bullish when it comes to its impact on the UK financial services industry. The sector remains buoyant. The UK Fintech sector has retained its role as the top-ranking investment destination in Europe, with $4.1bn invested across a total of 408 deals in 2020 (Innovate Finance).

One of the factors underlying this optimism is the UK’s strength in Open Banking, which launched here in January 2018. Admittedly, this positivity is based on the potential that Open Banking represents, rather than its current adoption. Some three years from launch, evidence suggests that awareness, uptake and interest amongst consumers is still rather patchy: Recent research from financial services consultancy Woodhurst, suggests that:

  • 38% of consumers are not even aware of the concept of Open Banking.
  • Though 2 million in the UK are now benefiting from Open Banking solutions, this only represents some 4% of users, suggesting that there is considerable scope for growth.
  • 50% are ok to share their information between financial services providers if it is used to help them better manage their finances.

However, the future for Open Finance is bright

Open Banking’s gradual evolution into the broader concept of Open Finance as systems have grown to accommodate pensions, mortgages, savings products, and insurance, makes it even more attractive to both investors and consumers.

In addition, the changes in consumer behaviour driven by the great COVID pandemic mean that Open Finance is an idea whose time has come. The constraints of lockdown life have made consumers look for solutions that give them digital access to services they previously could only access in person and made them value transparency, control, and convenience more than ever before.

  • Coronavirus is believed to have driven a 72% rise in use of fintech apps (link).
  • More than a third (36%) feel more comfortable using banking and money management apps since lockdown and almost a quarter (23%) trust online banking more now than before lockdown (link).
  • Increased mobile and online services usage is expected to continue after restrictions ease as more than two thirds (67%) of users plan to keep it up after lockdown. And nearly half (45%) say they would prefer if they could manage all of their personal finances by app (link).

The UK is well placed to lead Open Finance innovation

All of which points the way to a very strong future for Open Finance. The UK is hugely well positioned not only to take advantage of this promising future, but to lead it: high consumer demand, a very strong startup environment and light-touch financial regulation all make the UK an environment that will create the right conditions to stimulate FinTech innovation in Open Finance.

Open Finance will also transform business functionality. As Plaid said in its report, Open Finance – Shaping the future of financial services: “Executed well, open finance regulation will allow a re-imagining of value and revenue models for the industries it serves”.

Despite the gloom, disruption, and paralysis that COVID lockdown caused, the UK startup climate has remained active. Between 23rd March and 23rd April 2019, 176 new investments into UK start-ups were closed, worth a total of £495 million. In the same period in 2020, there were 112 deals made worth £661 million. This represents a fall of around 37% in terms of numbers but an increase of 34% in terms of value. Bigger investments spread within smaller numbers of recipients.

Moreover, Open Finance, as distinct from “mere” Open Banking, can offer distinct benefits for:

  • Savings: budgeting and forecasting tools, automatic savings functions and automated switching products
  • Wealth management: lowering the barrier to investment and investment advice
  • Pensions: allowing a consolidated view of disparate pensions holdings, enabling projections of final value
  • Insurance: collating products all in one place, enabling personalised pricing, automating renewals and switching

All the signs are that the financial future will be open and that in global terms, the UK is ideally placed to be at the forefront of the Open Finance revolution.

Where will Open Finance go next?

The emergence of Open Finance from its Open Banking parent is just the beginning. Longer-term, many, such as Fabien Ignaccolo, CEO of customer authentication platform Okay, foresee an even greater opening of consumer data streams, broadening out from the financial services category to potentially include a limitless array of other data sets, as Open Finance becomes Open Living or Open Data. Ignaccolo believes that if you “Build open data around banking, build open data around finance, and then you build open data everywhere, and then eventually you have a digital ID in place and great services, just like we’ve seen in the Nordics.”. Daniel Globerson, Head of Open Banking at Natwest agrees that “Open Data, or perhaps Open Everything, is the opportunity to share data across the entire digital ecosystem, regardless of industry and in a safe and secure way.”

In fact, we at UNLIMITED foresaw this evolution, certainly as far as the travel sector was concerned when we spoke about the same concept in our Towards an Era of Open Travel report back in early 2019. We identified the same three-tier structure to sharing:

  • firstly, with the trusted inner circle of a favoured brand;
  • then with the wider industry or sector (This is Open Banking and Open Finance);
  • and, finally, with other sectors (This is Open Data).

As the sharing circle widens so too does the scope for truly innovative service provision built from data-driven consumer understanding. In travel, this might mean your hotel minibar being pre-stocked with organic produce since the hotel’s algorithms have identified from your Tesco Clubcard data that you only ever buy organic. Truly joined up datasets that go beyond the financial services sector itself will stimulate another wave of product innovation and data sharing partnerships. What this might look like is very much up for grabs: but how about:

  • Financial services organisations leveraging their secure systems to become the “data hub” around which consumers build their own data ecosystems.
  • Sales of high-ticket items such as cars, homes, holidays and furniture to happen more seamlessly with no need for credit checks and payment plans to be optimised based on the financial holdings of the purchaser.
  • Account-to-account links between merchants and shoppers are already eliminating the cut taken by the card networks.

Evidence does indeed support the idea that there is an appetite for Open Data  – provided of course, that consumers are reassured about privacy, security, and misuse issues. Some 40% are open to sharing their information with non-bank third parties if it means them getting improved services such as personalisation.

Eventually, we will be able to drop the “Open” descriptor as the Open Finance mentality and transparent, inter-linked solutions become the norm rather than the exception. We will not need to call out when financial services are “one”, they all will be, by default. We are seeing the same kind of evolution throughout the tech space, as it becomes increasingly redundant to mention when interactions are mobile, or digital, or online.

While such inter-connectedness is, no doubt, some way off, the UK is well placed to deliver innovative solutions at all points along the journey from Open Banking, to Open Finance to Open Data.

Check out our newly-launched Open Finance PR Playbook here, providing expert advice and handy tools to help you tell your Open Finance story.

Nick Chiarelli, Head of Trends, UNLIMITED