The rise of Open Banking
Open banking first started in the United Kingdom in 2016. The Competition and Markets Authority (CMA) issued a directive requiring nine of the biggest banks in the UK to open up direct access to their data, to only licensed businesses. This was done to encourage innovation and competition among banks and fintechs.
Today, Open Banking creates secure and reliable access to customers' bank accounts for their financial data. With the use of APIs, businesses are able to access user-authorized data from banks or financial institutions and provide innovative financial services to their customers.
For the everyday person, open banking gives you control to share your financial data with trusted businesses, and also the choice to access financial services better tailored to your needs.
With Open Finance, consumers can have greater control over their financial data and can access a wider range of financial services too.
What is Open Finance?
Open Finance is the next step in the innovation that Open banking provides. Let's explore what this means.
With a large population of people still unbanked, relying just on open banking meant that if you didn't own a bank account, you wouldn't be able to share your financial data with businesses and access more personalized financial products or services. Open Finance changes that by allowing you to share your data from different sources other than banks so you can access a wider range of financial services, as well.
Everyone becomes financially included too, as businesses can now retrieve customers' data from multiple sources with their consent, and then build products and services that will improve their financial lives. Even without a bank account, open finance encourages more financial opportunities for everyone.
The next step in secure financial data sharing with Open Finance
Benefits for users and businesses
By bringing together financial data from multiple [non-banking] sources like pension, mortgage, insurance, savings, credit, investment, or even utility providers like your electricity company, open finance allows users to make their entire financial footprint accessible to businesses, so they can leverage it to build more inclusive financial products for everyone.
For example, David is a software engineer who earns NGN500,000 each month, however, he saves the bulk of his total income in a savings app, so he can build a better savings culture.
Down the line, he needs some money for a medical emergency but can't dip into his locked savings just yet, so he decides to get a loan. He shares his bank statement with the lending company but is only offered a loan of NGN15,000 - an amount which they think is suitable for him based on his current bank account balance and transaction history.
To increase his credit limit, open finance enables David to securely share his savings data with the lending company, so they can identify his income pattern, assess his ability to repay the loan, and then offer him the amount of credit he needs to sort out his emergency.
Here's another example; imagine that David is paid his salary through a payroll service and he wants to apply for a salary advance on another app that offers this service. He can simply connect his payroll service account and share his payroll data with the app so they can get a more accurate scope of his income pattern, instantly assess his creditworthiness, and offer him a salary advance in minutes.
Open finance also allows you to manage your finances better, you’re able to link your pensions, investments, insurance, savings, etc accounts to a personal finance management app you use, and manage these accounts in one place without switching between apps.
This is more convenient for businesses too, as they can easily aggregate your financial data points, and have a better picture of your cash flow pattern, such as how much you spend on health insurance monthly, or how much you have saved in your savings plan. And with this financial information, they can suggest financial advice like what assets to invest in, or compare insurance providers and recommend insurance packages that are better suited to your needs.
Is Open Finance Secure?
Just like with open banking, businesses can only access your financial data if given access. You remain in control of:
what financial information is shared
which data sources your information is shared from
which businesses can have access to your data, and
how long they can have access to your data
When you share your financial data with businesses, through Mono, we ensure that:
businesses can only access your financial data with your permission
your data is protected with bank-grade security, and can't be sold or rented to third parties
your login credentials for your banking and non-banking accounts are encrypted and not stored.
Open finance might still be in its early stages of adoption, especially in Africa but it promises financial innovation and more personalized solutions for everyone, such that even without a traditional bank account, financial opportunities are available for everyone. While it aggregates your financial data from multiple sources and puts it in your hands, open finance affords you the choice to share your data to unlock relevant financial services and products, that were otherwise inaccessible to you before.
