Open finance
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Yolt: Creating the Right Environment to Accelerate to Open Finance

The financial services industry has experienced drastic technological advancement over the past decade. Here Yolt Chief Business Officer Leon Muis explains how if we want to maintain this trajectory and keep up the pace all the way to the realm of open finance, there are several challenges ahead.

In particular, the industry needs to incentivise the uptake of technology, improve the regulatory environment, and continue to educate consumers about their rights to privacy, security regulations, and the benefits around open banking and open finance. 

The situation as it stands

There are currently two key challenges hindering faster financial services innovation; privacy and regulation.

1. Privacy concerns

Much of the innovation in financial services, both historically and currently, centers around the delivery of more personalised services, but to properly do this, firms need access to greater volumes of data for each customer. This, in turn, raises privacy and security concerns for both business and retail consumers; therefore the protection of data is central to the delivery of innovation. Our recent research, comprising of a survey of 800 business leaders in various financial services industries, both in the UK and the Netherlands, showed customer and business’ fears and misconceptions around data security are the greatest risk to widespread adoption of open banking.

2. Regulations 

The other barrier for innovation is the need for greater regulatory support. For example, with open banking there are currently very few incentives for banks to make their APIs available to third party service providers. PSD2 has done well so far in opening up the financial services system, but it will be interesting to see how regulators work together to clearly define tighter requirements for access to and sharing of data beyond PSD2 to cover more account types such as savings accounts and encourage the sharing of more consumer data.

Open banking and regulatory collaboration will take us towards open finance

With regards to privacy concerns, open banking can help. By giving customers ownership of their data, as open banking does, financial service innovators can provide greater security and open up a host of new offerings, tailored to their customers’ wants and needs. For example, retailers can gain access, with consumer consent, to information on customer spending habits, to identify patterns and send that customer targeted offers for the products in line with their spending history.

On the regulatory side of things, we are very fortunate in the UK to have  the FCA that understands the need for innovation and is  actively nurturing it. For example, in 2020, the FCA piloted its sandbox initiative, where firms can bring new innovative ideas which are safely tested before reaching the market. These types of schemes give firms the regulatory certainty they need to develop new technologies and deliver them at speed. 

However, from our research in the market, it’s clear that in certain corners of financial services, the perception is growing that regulators could be doing more to ensure high street banks keep up their end of the open banking bargain – with almost one in five respondents perceiving the current general regulatory environment as the greatest risk to widespread adoption of open banking. More initiatives such as the sandbox will help us maintain the pace of innovation in the near term. 

Working towards open finance

Growth in new technologies, changing customer behaviour and a more open system of finance has given rise to ecosystems in financial services – systems of collaboration between different players to create new products and services which are mutually beneficial to businesses and consumers.  

But the end goal is not just new products, but a financial utopia, where all financial products can be managed in an open and digital way, enabling greater choice of consumers, new business models, and compounds of innovation in financial services. We are still a way from realising this goal but taking these first steps will mean the path towards a more open finance world will be a lot clearer.


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