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Embrace Open Finance Or Get Left Behind – Study
Open finance enables access and sharing of consumer data to even more financial products and services, covering everything from loans to pensions, linking financial data with non-financial sectors, such as healthcare and government. A new report maps the territory, and points to what's at stake.
The open banking market is on track to reach $123.7 billion in
size by 2031 from $13.9 billion in 2020, revolutionising the
financial industry, according to a new report.
Open finance will herald a revolution so profound that industry
players will be compelled to reshape their business models, the
48-page study, prepared by PwC Luxembourg and commissioned by
Luxembourg for Finance, says.
“We are truly at the genesis of a revolution, and open finance
will unlock significant opportunities for innovation, enhanced
customer experiences and competitive advantages,” it
says.
Open finance enables access and sharing of consumer data to even
more financial products and services – not just banking, as
in the case of open banking. The OF term covers loans, consumer
credit, investments, and pensions. It also enables wider
integration of financial data with non-financial industries, such
as healthcare and government.
While open finance is not a typical offering from private
banking, and more of a retail/mass-affluent phenomenon, the
changes wrought are likely to affect firms catering to high net
worth and ultra-HNW individuals.
A brief outline:
Source: PWC, Luxembourg For Finance
Firms in the space – there appear to be hundreds worldwide –
include Finerio Connect (Mexico); Liquid Token (Japan); Upswing
(India); Yapily (UK); Lina Open (Brazil), Polymarket (US);
Brankas (Indonesia); Okra (Nigeria); Akahu (New Zealand); truID
(South Africa); Moneyhub (UK); and LawFi (US), according to
the Venture Radar website.
Regulatory patchwork
The report notes that regulators in places such as Hong Kong,
Singapore, Saudi Arabia, Australia, Brazil, India, the European
Union, the UK and South Korea are drafting, or have set up, rules
enabling open finance to develop.
A big driver of open finance is the rise of a more digitally
savvy population: Generation Z, for example, is far more
comfortable with such technology than older peers.
What it means
The PwC/Luxembourg report says that open finance data sharing
will provide clients with a unified view of investments across
multiple advisors and asset managers. It also says that “one-stop
shops” will offer real-time, optimised asset allocation and
enhanced transparency, driving industry consolidation and
eliminating firms that don’t adapt. The report says OF will force
change in the way retail funds are distributed: asset and
wealth management products and services will be integrated into
the interfaces of third-party providers via APIs (application
programming interfaces).
APIs are key to expanding data sharing, the report says, with the
number of “calls” – requests for data exchange – between
financial institutions projected to grow from 102 billion in 2023
to 580 billion by 2027, representing a compound annual growth
rate of more than 54 per cent.
“The financial sector is yet again undergoing a fundamental
transformation, and this time, it is the transition from open
banking to open finance. With this transition, the fragmented age
of financial services is entering its twilight – one that
should be fully realised by the end of this decade. In its place,
a new era is emerging,” it says.
“In the banking industry, data monetisation will become a
significant revenue stream for financial institutions that hold
customer data and, with client consent, provide it to third
parties,” it says.
“Open finance will create holistic advice and management
solutions. In the AWM industry, data sharing through open finance
will allow industry players to provide clients with an overall
view of their investments, even if these are with different
advisors and include products from various asset managers,” it
says.