The views and opinions expressed in this text belong to the author and do not necessarily reflect the views of Nordea.
Please note, this is not a blog about the regulatory or technological complexities of Open Banking. It is about purpose. The why of Open Banking tends to be forgotten whilst solving the complex issues related to opening up a highly regulated industry.
However, it is pivotal to focus on the why again as we need to take Open Banking to the next level: Open Finance. Covid-19 has painfully demonstrated how financially vulnerable both people and companies are and how it is impacting our economy and community. Opening up a wider range of financial data is essential in making our communities more resilient and our economies stronger.
Financial institutes can play a key role in enabling secure access to and sharing of financial data and create the support that people are looking for to become and stay financially healthy. Not because the industry is forced to by regulators, but because it recognises the value both from a business and community perspective. And the time is now.
People are financially healthy when they:
- Are able to pay their bills on time
- Experience credit freedom
- Save for the future
- Are financially literate
Urgency for openness beyond PSD2 increases
If you ask me, the purpose of the financial industry opening up is building a financially healthy and resilient community that is supported by an open and inclusive financial ecosystem empowering people and companies to be in control of their finances.
The pace of innovation has never been higher and it constantly changes the way we interact, transact and do business. It requires us to be flexible. Financially healthy communities and companies are just better equipped to deal with change and thus more flexible. However, these days, being in control of your finances is hard. Due to the economic recession, bills are outpacing income, financial markets are instable, interest rates are at an all-time low and access to credit is difficult. Moreover, research shows that people generally overestimate their financial literacy. They struggle with keeping track and taking the right decisions, due to the complex nature of financial products, fragmentation of service providers and difficulties around accessing their data.
So — and I am being blunt here — even though Open Banking has improved transparency, contributed to customers being more literate about their housekeeping book, and the digitisation of payment journeys, it is not enough. The urgency for openness beyond the scope of PSD2 is rapidly increasing. The data of other financial products like savings, investments, insurances and pensions should be accessible too for TPPs. This is the only way to build a much-needed ecosystem that puts people in control of their financial health.
However, operating in a highly regulated and politicised industry, financial institutes like banks, insurers and pension funds have become quite reluctant to take initiative and really open up. Rules and regulations are often used as an argument to defer it. Even though it is understandable, future proof it certainly is not. With our economy and society digitalising rapidly, data driven- and customer first value propositions have become business essentials. Opening up is the only way forward. If you do not, somebody else will do it for you. With the rise of neo banks and Fintech, we have ample proof of their disruptive power to traditional business models and customer interactions.
So, instead of playing the ‘let’s wait and see’ game and risk losing business, it is time to go back to purpose again and take a more offensive approach and start shaping Open Finance.
Rise of ethical leadership opportunity to deliver on Open Finance
Open Finance however not only makes sense from a business perspective, also from an ethical perspective value can be created. More and more companies and organisations are expected to demonstrate leadership in this area. Accelerated by Covid-19, the Black Lives Matter and MeToo movements, the competitive position and reputation of companies and organisations are not just determined by their profitability and market leadership. It is also determined by their contribution to socially and community relevant topics like sustainability, good employer- and partnership and diversity & inclusion. Empowering people and organisations to become and stay financially healthy, ticks a lot of these boxes.
Additionally, in a data driven economy and community, where customers are more and more aware of the value of their data, access to and management of their data, should not be the sole prerogative of any (financial) institution or platform. It should be a shared responsibility of all parties involved, including the customer. An open and inclusive ecosystem can facilitate in balancing responsibilities, risks and benefits in a controlled way. Financial organisations that understand how this, especially now, is important, will put the end user in the driver’s seat and create value in opening up from both a business and an ethical point of view.
Never waste a good crisis
As Churchill said “never waste a good crisis.” With so many people and companies struggling to stay afloat these days, the time is now for the financial industry to demonstrate both market- and ethical leadership. Creating the right conditions for Open Finance, requires leaders who see the purpose of opening up and how it benefits our community and economy. Whether it relates to solving fragmentation, create more transparency and simplify complexity, access to a wider range of financial data is the only way to put people and companies in control of their financial health.
Open Banking has been the gateway proving that the financial industry can indeed open up to new players, disrupt itself and create new value for its customers. So, all the ingredients are there to lead the way to Open Finance. And with the launch of EU Digital Finance Package by the European Commission, it is now only a matter of stepping up, use purpose to ignite cooperation and start building a financially healthy and resilient community. Now who cannot agree with this?
Esther lives in the Netherlands and has an extensive background in strategy (execution), sales & business development, digital transformation and building high performing teams in the Banking and Fintech industry. Esther is currently advising Holland Fintech. She was partner at Innopay — a Dutch strategy consultancy firm in digital transactions — where she led the Banking, Payments & Fintech practice and represented the company on topics like payment innovation, open banking, digital identity and smart home commerce. Prior to joining Innopay, she worked for over 10 years in global transaction services at ABN Amro and the Royal Bank of Scotland in multiple management roles. Esther is also a strong advocate for a diverse and inclusive financial industry with inspiring male and female role models. As such she represents EWPN — European Women in Payments Network — in the Netherlands as country ambassador and actively promotes the positive impact of diversity on the performance of businesses.
This article originally appeared on Nordea Open Banking’s Medium blog.