It’s no secret that digitalization is one of the most transformative trends of the 21st century. From cutting-edge technologies like artificial intelligence (AI) and enterprise blockchain data storage to traditional industries like manufacturing and shipping – moving processes and data into integrated systems is unlocking new business ecosystems. Open banking, which facilitates account information (AIS) and payment initiation (PIS) services, is estimated to grow in value more than 500% up to 330 billion USD between 2023 and 2027. Expanding this concept, Open Finance represents the next evolution of financial services, creating even more ecosystems for growth, enabling sustainable decision-making and driving positive societal change.
Defining Open Finance
So, what exactly is Open Finance, and how will it impact financial systems as we know it? Open Finance empowers consumers by giving them greater control over their financial data, enabling personalized services and informed decision-making. It also promotes seamless integration between financial institutions and fintech solutions, sparking competition and driving innovation across the financial services sector.
In the Asia-Pacific (APAC) region, where disparities in financial and economic systems can create barriers to access, Open Finance has the potential to significantly enhance financial inclusion by providing underserved populations with access to a wider range of financial products and services. Leveraging Application Programming Interfaces (APIs), Open Finance enables secure data sharing and collaboration between banks, fintechs, and third-party providers, paving the way for a more connected financial ecosystem.
How does Open Finance benefit customers?
Without a doubt, the biggest beneficiaries of Open Finance are the customers. Open Finance fosters a more competitive marketspace, allowing new entrants and fintechs to challenge traditional banks. This increased competition can lead to better products and pricing for consumers. By facilitating collaboration between banks and fintechs, Open Finance accelerates the development of innovative financial solutions and services tailored to evolving customer needs. It brings a new focus to help organizations to serve entire customer journey by bringing them the services they need, in the right context, at the right time. Customers benefit from more personalized and integrated services, creating a smoother and more user-friendly financial experience.
Furthermore, Open Finance initiatives extend financial products to underserved populations, promoting greater financial inclusion. The ability to collect and analyse diverse financial data allows institutions to gain deeper insights into customers’ behaviors and preferences, which informs better decision-making and service delivery, benefiting both consumers and financial service providers.
The path to adoption
Regulatory support for Open Finance is growing across the Asia-Pacific region, with countries like Singapore, Australia, and Malaysia leading the charge. These countries have taken significant steps in establishing frameworks that promote data sharing and interoperability among financial institutions, fostering innovation while ensuring customer protection and data security. The Monetary Authority of Singapore (MAS) has issued guidelines encouraging banks to adopt open APIs, while Australia’s Consumer Data Right legislation mandates that financial institutions share consumer data upon request, enhancing competition and consumer choice. Additionally, sandbox programs in Hong Kong are enabling fintech firms to test solutions in controlled environments, helping drive collaboration and innovation within the financial sector.
A key focus of these efforts is the standardization of APIs and improving interoperability between financial institutions and fintechs. For instance, MAS has launched the API Exchange (APIX), a platform that provides a common framework for financial institutions and fintechs to share APIs and collaborate on innovative solutions. Similarly, the Hong Kong Monetary Authority (HKMA) has introduced the Open API Framework, which sets guidelines for banks to develop standardized APIs that facilitate data sharing while maintaining security and privacy. Meanwhile, Malaysia’s Financial Sector Digital Transformation initiative promotes API standardization, driving innovation and enhancing user experiences. These initiatives are laying the groundwork for a more integrated financial ecosystem in the region.
Banks must modernize their payment infrastructure to keep up and meet customer demands, including increasing need for faster, more transparent, and real-time payment options. Financial institutions need a common approach to support this modernization and innovation. We are seeing a shift now to central platforms that can support multiple payment types rather than traditional siloed engines. A comprehensive modernization framework, like Finastra’s Global Payments Framework composable banking approach, is built on a growing set of microservices, so that institutions can target their investment to specific pressing needs and achieve rapid ROI.
Looking Ahead: The future of Open Finance
As Open Finance continues to gain traction, it is imperative for stakeholders – financial institutions, fintech companies, and regulators alike – to embrace its principles fully. By adopting Open Finance strategies, financial institutions can leverage their existing infrastructure to collaborate with fintechs, creating a diverse ecosystem that offers customers a wider array of personalized financial products. Fintech companies, in turn, can contribute their agility and technological expertise to drive advancements that benefit the entire financial sector.
Together, these stakeholders can foster a marketplace that prioritizes consumer needs, encourages innovation, and promotes competition, ultimately leading to better financial outcomes for everyone.
This essay was written by Arun Kini, APAC Managing Director, Payments, at Finastra.
To learn more about Open Finance and Finastra’s efforts in enabling collaborative, secure, and innovative financial ecosystems, visit us at Sibos stand G30.
