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September 20, 2022

The inevitable acceleration of open finance

Fredy Liu

A glance into open finance:

With the emergence and continual advancement of financial technology, coupled with shifting preferences among banking consumers toward digital solutions, the time is now for forward-looking financial organizations to capitalize on the many benefits open finance provides.

Open finance is designed to give consumers greater control over their financial data and, ultimately, greater flexibility in how they manage their financial lives. Open finance enables consumers to choose to share their financial account information (account balance and transactions, investment holdings, etc.) with third-party financial service providers through application programming interfaces (APIs). This banking innovation provides multiple, highly versatile provider and end-user experience advantages, and is becoming a major source of innovation that is rapidly shifting the financial services industry. 

The adoption of this practice has been predominantly seen throughout Europe, Asia, and Latin America driven by regulatory oversight. The U.S. is making significant advancements that are primarily industry driven. As a result, if properly executed, open finance within the U.S. can assist in accelerating banks’ digital transformation, resulting in more diversified revenue opportunities and aligning with changing consumer preferences. 

The open finance opportunity:

While the concept of customers voluntarily sharing their financial data with third-party entities has been around for some time, the global open finance market is expected to grow from $15.13 billion in 2021 to $48.13 billion in 2026. As a result, several financial institutions have already begun implementing open finance solutions to account for this surge within the market and to keep up with this growing consumer demand.

“Innovation fueled by open banking has forever changed what consumers expect from financial services. People expect connected experiences among the many apps and services they use to manage their financial lives,” said Raja Chakravorti, Universal Access Lead for Plaid. 

How should financial institutions prepare for open finance?

Capco identified key activities financial institutions should focus on in its recent paper, Current State Of Play & Lessons From Open Banking (Read Here), including: 

  • Confirm the scope of your open finance initiative so the objectives and priorities are clearly understood by all.

  • Adopt a digital-first mindset and consider the target operating model required to support open finance, e.g. strategy to standardize and digitize data.

  • Re-learn the lessons of open banking. Get into a cycle of building new platforms, release incrementally, learn from early integrators and improve services.

  • Define the right environments to build and deploy these services, how integrated they are to the core systems, and what security controls protect them.

  • Embed good development practices into your new service builds, logging, auditability, health monitoring, etc.

  • Develop carefully prioritized implementation roadmaps.

Accelerators behind the open finance movement: 

For financial institutions to successfully capitalize on this market potential within the U.S., they can partner with industry-leading data transfer networking providers to enhance their customer’s experience. For example, Plaid's financial technology data network powers over 6,000 apps that consumers rely on to manage their financial lives.

In response to the anticipated growth within this space, Plaid has introduced its latest Data Connectivity solution, Core Exchange, which accelerates the onboarding of institutions into the open finance API ecosystem and is aligned with the Financial Data Exchange (FDX) API specification. 

Capco & Plaid: Joint open finance offering:

Together, Capco and Plaid have developed an open finance offering to help firms streamline efforts and avoid the pitfalls many institutions have discovered along the way. This collaborative offering helps clients from strategy to execution, spanning themes such as data privacy and security, API mapping and integration, governance, customer experience, and much more.   

Looking to learn more about open finance and how Capco and Plaid can help you embark upon the open finance journey?