The uncharted waters of Open Finance

For the better part of a decade, Open Banking has dominated the fintech discourse. In the UK, it was mandated by the Competition and Markets Authority (CMA) to foster competition. In the US, it has been driven more by market forces, with firms like Plaid becoming essential data bridges. The core premise was revolutionary yet simple: empower consumers and businesses to securely share their current account data with trusted third parties. This unlocked a wave of innovation, from smarter budgeting apps to streamlined lending applications.

However, to view Open Banking as the ultimate goal is to miss the point entirely. It was never the end goal; it was the beachhead.

The true revolution, now gathering momentum, is Open Finance.

This is the next logical, and far more profound, phase of data-driven finance. It proposes extending the principles of data sharing beyond simple payment accounts to encompass the entirety of a customer’s financial life: savings, investments, mortgages, pensions, and insurance. The ambition is to create a holistic, real-time, and deeply personalized financial ecosystem.

For leaders in banking, finance, and technology, understanding this shift is not an academic exercise. It is a strategic imperative. The transition to Open Finance will fundamentally reshape product development, competitive dynamics, and the very nature of the relationship between financial institutions and their customers.

The Prize: From Aggregation to Intelligence

The initial promise of Open Banking was data aggregation—seeing all your accounts in one place. While useful, this is merely table stakes. The real value of Open Finance lies in moving from aggregation to intelligence.

When a fintech or a bank has a secure, permissioned view of a customer’s complete financial footprint, the possibilities expand exponentially. Imagine a platform that doesn’t just show a customer their mortgage balance, but can proactively analyze their savings, investments, and pension contributions to calculate whether an overpayment would be the most effective use of their capital. Consider a service that can automatically sweep spare cash not into a low-yield savings account, but into a diversified investment portfolio tailored to the customer’s real-time risk appetite, which is itself informed by their spending habits and financial goals.

This is not about creating a slightly better banking dashboard. It is about building an autonomous financial co-pilot for the consumer. For small and medium-sized enterprises (SMEs), the potential is just as transformative.

An Open Finance framework could allow a lender to see not just a company’s cash flow, but its insurance coverage, pension liabilities, and investment holdings, leading to more accurate risk assessments and more sophisticated, tailored credit products.

The Hurdles: A Minefield of Complexity

While the vision is compelling, the path to Open Finance is fraught with challenges far exceeding those encountered during the rollout of Open Banking.

1. Technical Standardization: The relative simplicity of current account data belies the complexity of mortgage, pension, and investment data. These products are non-standardized, with complex fee structures, varying terms, and a multitude of data points. Creating a common, secure API standard that can accommodate this diversity is a monumental technical undertaking. The industry will need to move beyond the single-minded focus on payment APIs and build a far more robust and flexible data infrastructure.
2. The Consent and Liability Conundrum: The scope of data in an Open Finance world is an order of magnitude more sensitive. Who is liable if an AI-driven financial advice engine, powered by Open Finance data, gives poor advice that leads to a financial loss? How do firms manage the complexities of long-term consent for products like pensions, which may span decades? The regulatory and legal frameworks for consent, liability, and data privacy will need to evolve significantly to provide clarity and protect consumers.
3. The Commercial Model: Open Banking in the UK was largely driven by regulatory mandate, which forced the major banks to build and maintain the necessary infrastructure at their own cost. A sustainable commercial model for Open Finance is less clear. Who pays for the development and maintenance of these complex APIs? Will data providers (the incumbent institutions) be able to charge for access? A viable, equitable commercial framework that incentivizes all parties to participate is essential for Open Finance to thrive.

The Strategic Imperative: Prepare for a World of Ecosystems

For financial institutions, the transition to Open Finance is not optional. The question is not if it will happen, but how firms will position themselves in the new landscape. The traditional, vertically integrated model of banking—where a single institution provides all products to its customers—is becoming obsolete. The future is one of ecosystems.

In this new world, banks and fintechs will have to make a critical strategic choice:

• Become a Manufacturer: Focus on creating best-in-class financial products (mortgages, investment funds, etc.) that can be seamlessly distributed through third-party platforms.
• Become a Distributor: Focus on building the customer-facing platform—the “financial co-pilot”—that aggregates the best products from across the market and provides intelligent, data-driven advice.
• Become an Infrastructure Provider: Focus on building the “pipes” and data analytics tools that power the entire ecosystem.

Attempting to be all three will be a significant challenge, even for the largest institutions. The strategic decisions being made in boardrooms today about ‘where to invest’ and ‘where to partner’ will determine the winners and losers in the era of Open Finance.

The journey has just begun, but the direction of travel is clear. Open Banking was the catalyst, but Open Finance is the main event. It promises a more connected, intelligent, and personalized financial world, but it also presents a new set of complex challenges. The institutions that succeed will be those that embrace the complexity, make the tough strategic choices, and start building for this new reality today.