Open Banking and Open Finance - we explore the differences between the two. Open Banking was only the first building block on the way to Open Finance. But what is Open Finance, and what does it mean for consumers and businesses? To answer that question, we need to start at the beginning.
Why was Open Banking introduced?
Open Banking was mandated by the Competition and Markets Authority (CMA) following its investigation into competition in the UK’s retail banking market. Its report found that older, larger banks do not have to compete hard enough for customers’ business, and smaller and newer banks find it difficult to grow and access the market.
At its core, the purpose of Open Banking is to enable and encourage competition in the financial services sector to stimulate innovation and “unbundle” complex retail banking products (in particular, personal and business payments). Providing greater access and control of data - and empowering tech-led businesses to innovate and boost competition in retail banking - Open Banking finally puts customers at the forefront.
“At its core, the purpose of Open Banking is to enable and encourage competition in the financial services sector to stimulate innovation and “unbundle” complex retail banking products.”
When was Open Banking introduced?
Open Banking legislation formally came into force on 13 January 2018, as part of the UK’s implementation of the EU’s Second Payment Services Directive (PSD2) imposed on the largest UK banks (known as CMA9) by the UK Competition and Markets Authority.
The original nine banks and building societies taking part in Open Banking, known as ‘CMA9’, are:
AIB Group UK (trading as First Trust Bank in Northern Ireland)
Bank of Ireland (UK)
Barclays Bank
HSBC Group (including First Direct and M&S)
Lloyds Banking Group (including Bank of Scotland and Halifax)
Nationwide Building Society
Northern Bank Limited (trading as Danske Bank)
The Royal Bank of Scotland Group (including NatWest and Ulster Bank)
Santander UK
What is Open Banking?
Open Banking enables customers, and small and medium-sized businesses to share their bank account information securely with other third party providers (TPPs). Consumers can authorise TPPs like Moneyhub to access their bank account information (account information services) and make payments on their behalf (payment initiation services) through secure application programming interfaces (APIs). In doing so, consumers have increased control over their financial data; have a better, more holistic understanding of their financial situation; and receive a more tailored experience from financial service providers.
The PSD2 and Open Banking regulations broke open the silos around current accounts and sparked a shift from a closed model where banks control customer data, to an open ecosystem where the customer is firmly back in charge. It is up to them as to with whom the data is shared and payments are made.
The introduction of Open Banking was a milestone moment. But the focus for Moneyhub was the potential which it unleashed - the power to transform the financial world through customer-centric Open Finance.
“The PSD2 and Open Banking regulations broke open the silos around current accounts and sparked a shift from a closed model where banks control customer data, to an open ecosystem where the customer is firmly back in charge. It is up to them as to with whom the data is shared and payments are made. ”
What is Open Finance?
Data and technology are fundamentally changing financial services. From the outset, Moneyhub recognised that long term financial planning and better decision-making needs a holistic set of financial data beyond the reach of Open Banking. Open Finance extends the principles of Open Banking to pensions, investments, loans, mortgages, insurance protection, healthcare and savings. The potential benefits to consumers of seeing all their financial world in one place are multiplicative, not additive, and maximising these benefits will help to level-up financial outcomes for consumers and rebuild trust in financial services.
“From the outset, Moneyhub recognised that long term financial planning and better decision-making needs a holistic set of financial data beyond the reach of Open Banking.”
With open infrastructure extending into the wider market, consumers using Moneyhub-powered solutions, like Lumio and OpenMoney, already benefit from a greater range of products tailored to their needs. At the same time, businesses in financial services and beyond are able to harness the insight necessary to drive engagement - like insurance, pension and health. Leading employee benefit firms, including Aon and Mercer, have already seized this opportunity, putting Moneyhub’s solution to work.
What does Open Finance mean for your business?
The key driving principle behind both Open Banking and the wider future of Open Finance is an environment in which businesses are equipped to help customers take control of their financial data. Moneyhub is here to empower and enable businesses to do exactly that.
With your customers’ consent, you can access unique and holistic insights into their financial habits, needs, behaviours, and aspirations.
Access to this otherwise unknown data enables businesses to remove their customers’ financial anxiety, empowering them to do more with their money and take advantage of a wide range of financial products and services.
This is a good thing for customers, for financial institutions and for those businesses new to the space - allowing for more sophisticated, customised and holistic finance management, automated switching and renewals, and more accurate creditworthiness assessments.
For the first time, frictionless access to financial services is also available to people that have been excluded from financial services. From a business perspective, access to this level of insight means that decisions based around a customers’ financial health can be more nuanced, as it’s based on a wider and deeper pool of data. A new level of more impactful engagement can also be initiated through bespoke advice and suitable product offerings.
With Moneyhub, any business can build more insightful, affordable and effective financial services to provide tangible and immediate benefits to consumers! Consumers are able to oversee and control their entire financial universe far beyond just current accounts - such as debts, savings, retirement funds, insurance products, investments and properties.
“With Moneyhub, any business can build more insightful, affordable and effective financial services to provide tangible and immediate benefits to consumers.”
Where next for Open Finance?
The consumer demand for Open Finance solutions is both proven and growing, while the commercial value is being recognised by forward-thinking organisations. However, the framework for data sharing outside of current accounts is less clear, relying on GDPR to give consumers access and control over their data. This does leave an opportunity for some organisations to make it harder for the consumer to take control than it needs to be.
In March 2020, the Financial Conduct Authority (FCA) issued a "Call for Input" to the financial services industry in respect of its plan to extend Open Banking to financial services more generally - or, in other words ‘Open Finance’. It was clear that for full potential to be realised, all market players would have to adopt the necessary interfaces, technologies, and mindset. Find out more about Moneyhub’s response to the FCA consultation on Open Finance.
The final result of Open Finance is a world in which everyone, regardless of their wealth, can take control of their finances.
“Moneyhub is on a mission to enhance lifetime financial wellness and stop money-related anxiety for good.”
How Moneyhub solves real world problems
Moneyhub is on a mission to enhance lifetime financial wellness and stop money-related anxiety for good by helping people every day with their journey towards financial literacy, wellbeing and independence. We provide access to Open Finance to businesses from within and outside the financial services sector as well as to consumers directly.
But actions speak louder than words. Hear what our customers have to say and see how, with our Open Finance platform, we are solving real world problems today.