FDATA’s Open Thoughts

Before we address untapped industries outside the financial space, it is important to note that the wealth management use cases have not yet received sufficient attention in the design and implementation of open banking/finance in the US and Canada. Current initiatives are almost exclusively focused on retail banking use cases for personal financial management (PFM), lending and payments—with asymmetric and incomplete coverage of investing, advice, education, and retirement related use cases. These issues are insufficiently addressed by the current Consumer Financial Protection Bureau’s NPRM of the Dodd-Frank Act Section 1033: lacking support by providers and technical standards organizations for delegated access in the consent and authentication flows, inconsistent data parity by providers who do publish APIs, and prohibitions on screen-scraping by those that don’t publish APIs without alternative access solutions.

There also exists an unfair characterization that wealth management use cases are only for the rich, rather than for everyday workers, retirees, and their families who need to prepare for and live fruitful and dignified lives. Saving for and funding education, caring for elderly or disabled family members, and ensuring a safe retirement are more prevalent needs than those of the ultra-high-net worth

The CFPB and the SEC should join forces to ensure a unified data sharing ecosystem that will also support the SEC’s Reg-BI to ensure advisors’ fiduciary duty.

In Latin America, data openness can contribute not only to the financial sector but also to other sectors, such as telecom, healthcare, and delivery services, for example. One sector that has been advancing in the implementation of open data infrastructures is insurance in Brazil. The implementation will allow for the customization of policies based on more detailed financial profiles and greater efficiency in contracting. However, unlike Brazilian Open Banking, Open Insurance faces some challenges in terms of schedule and technology in the country.

Additionally, there are sectors that have not yet been widely explored when it comes to the potential of data openness. The energy sector, for example, could use financial data to offer more personalized tariffs or energy efficiency programs based on detailed consumption analyses. The agricultural sector is also a promising candidate, where financial data could be used to create more suitable financing solutions for small producers, improving access to credit. There are many challenges in this regard, from the lack of organized discussions to explore the topic to regulatory and governance impasses. I believe that in sectors beyond the traditional ones, we will first see initiatives being created and driven by the market, followed by regulatory movements.

We can learn a lot from Brazil’s Open Finance and the British model itself in terms of governance, technological standards, and adoption strategies. It is very likely that we will see interesting intersections emerging in the coming years, in a much shorter time than we saw in the financial sector. However, we still face challenges in measuring the return on investment and creating use cases that are truly beneficial for all parties involved.

Focusing on individual use cases for open banking risks material small business productivity gains. We often hear of the one-off open banking use cases for individuals: sharing data with a broker to secure a home loan or comparing banking products to find the most competitive rate, for example. Designing open banking with these consumer processes as the primary open banking use case risks the viability of sharing data for extended periods of time.

Open banking is incredibly important for small businesses, especially small businesses operating on thin profit margins. Being able to securely share transaction data with accounting software via open banking means small businesses can understand their financial position in close to real-time. Visibility of looming cash challenges means small businesses can proactively assess and manage their options. Small businesses should be central to the development of open banking regulation.

Governments around the world have recognised that data-sharing economies are the next building block for economic growth, and ultimately better outcomes for end consumers. We’ve seen this with the adoption wave of open banking and finance, where each week seemingly brings an announcement that another country has published its regulatory framework to open up banking and financial data. Of course this isn’t limited to just financial data; similar initiatives are happening in the energy, telecomms, transportation, retail, and health sectors.

However, these sectors are at the very beginning of their respective journeys, and at very different levels of readiness. One industry prime for opening up data sharing is the energy sector. The immediate benefits of optimising switching, grid distribution, and pricing are waiting to be realised. But one use case that would have profound effects on cutting carbon emissions actually relies on not just energy data, but financial data, too: automating emissions reporting to improve access for SMEs to green finance.

In the UK, Project Perseus is undertaking to do just that. A collective of banks, cloud accounting platforms, carbon accounting firms, and energy companies are working to bring this to life. Like any data sharing framework, the complexities of the liability model, the technical and data standards, the scheme rulebook, and the digital verification, consent and trust frameworks take time to sort. However, because open banking provides a starting template, work on this is happening at pace. In fact, it’s moving more quickly than the legislation underpinning the smart data framework that would formalise the broader, multi-sector data sharing economic model government is sponsoring.

While the energy sector is touted as the next industry to be opened up, it hasn’t yet been tapped in the same way banking and finance has. But regulators and policymakers are working to make it happen: for example, Ofgem, the UK Energy regulator, just published its consultation on the consumer consent solution as part of its broader Data Sharing in a Digital Future initiative, which will be interoperable with open banking and the long-term regulatory framework that will take shape for the UK’s Smart Data scheme.

We’re now seeing other sectors applying lessons learned from open banking in order to tap into the potential their sector data sharing will bring.

When discussing potential untapped industries that could benefit from open banking and financial technologies, financial advisors stand out. Traditionally, fintech tools have been associated with direct consumer use; however, technology platforms can play a critical role in enabling financial advisors, to support and manage their clients’ financial wellbeing. The primary benefit of fintech platforms for financial advisors lies in their ability to provide comprehensive financial oversight and personalized advice. Advisors can use fintech tools to gain a holistic view of their clients’ financial situations by accessing various accounts and financial data securely. This access allows advisors to craft tailored financial strategies that align with their clients’ specific goals and circumstances. The fintech tools enable automation of portfolio rebalancing, optimization of tax strategies, and real-time tracking of investment performance. These capabilities ensure that advisors can offer precise, timely, and effective advice, significantly enhancing their clients’financial outcomes. One of the significant advantages of leveraging fintech tools is the enhancement of financial advisors’ ability to manage clients’ portfolios continuously. This ongoing management leads to better long-term financial outcomes by ensuring that investments are always aligned with the clients’ goals and market conditions. Fintech tools also allow advisors to efficiently identify opportunities for tax optimization, enabling their clients to save more and grow their wealth more effectively. Moreover, real-time data access and analysis empower advisors to make informed decisions quickly, providing their clients with the best possible financial strategies. Upcoming initiatives, particularly the United States’ Consumer Financial Protection Bureau (CFPB) finalizing the Section 1033 rule this fall, will enable consumers and small and medium-sized enterprises to have the legal right to share their balance and transaction information from any and all of their Regulation E debit and Regulation Z credit accounts.

Increasing financial inclusion is vital in supporting the financial wellbeing of individuals and SMEs and to drive economic growth.

In the UK, the government plays a crucial role in enabling financial inclusion. For example the House of Commons Treasury Committee Inquiry into SME Finance, the establishment of the Centre for Finance, Innovation and Technology (CFIT) last year, as well as the UK’s Economic Secretary’s announcement of a new industry-led Open Finance Taskforce focused on how financial data can be safely unlocked to improve SMEs’ access to credit.

By leveraging open banking data, and other alternative data sources, we can improve inclusion by assessing creditworthiness for those who may not have traditional credit histories. Analysing real-time financial data such as income, spending patterns, and banking transactions allows lenders to make more accurate lending decisions and extend credit to individuals who were previously underserved or excluded from traditional financial services.

HMRC tax data can also improve lending decisions for SMEs by 25%, as demonstrated in the recent CFIT proof-of-concept led by HSBC. The trailblazing Financial Conduct Authority (FCA) makes it possible to test these novel approaches through their Innovation Hub’s Permanent Digital Sandbox, Innovation Pathways and Regulatory Sandbox services.

Lastly, financial inclusion can be undoubtedly propelled further through new technologies that improve access to financial services for individuals in remote areas, streamline the application process for loans and credit, and enable more accurate assessment of creditworthiness for underserved populations. From mobile banking apps to digital payment platforms, as well as artificial intelligence for alternative credit scoring, there is exciting tech that can expand financial inclusion and improve financial wellness and resilience.

Darren Smith

Executive Director Finexos, an FDATA Europe Member

Open Finance has been used as a promising avenue to enable financial inclusion for millions of Latin Americans, especially in countries like Brazil, Chile, and Colombia, which have made significant regulatory advancements.

In Chile, for example, the Comisión para el Mercado Financiero (CMF) has been actively working to implement regulations that favor Open Finance. The recently approved Fintech Law establishes a clear regulatory framework for integrating new digital financial services, promoting competition and innovation.

In Colombia, the Financial Superintendency has launched a series of initiatives to strengthen the Open Banking infrastructure. Colombian regulation has focused on ensuring consumer data security and privacy while facilitating collaboration between traditional banks and fintechs. This can create a more inclusive environment where more people can access modern and efficient financial services.

An essential pathway for the success of these data-sharing infrastructures will be instant payments, which will enable inclusion and the creation of more data on users’ financial behavior, allowing the development of more use cases. Pix in Brazil, for example, was efficient in this approach, including more than 75 million people and generating more behavioral data about users.

Brazil has stood out in use cases in the region thanks to the advanced framework implemented. What is essential for the success of this infrastructure is precisely the creation of use cases, and we can already see the industry innovating from it. For example, Palenca is allowing financial institutions to access gig economy data for credit evaluations. This is particularly relevant in a market where many workers do not have formal income and, therefore, have difficulty accessing traditional financial services. Banco do Brasil has also implemented solutions that allow users to better aggregate and manage their financial information, helping them better understand their financial situation across different accounts. Another relevant case is BBVA, which, through the analysis of financial transactions via Open Finance, had a significant social impact. After Hurricane Odile in Mexico, BBVA helped the Mexican government identify which regions were recovering more slowly, allowing for more effective and targeted resource allocation.

Open Finance is proving to be a powerful tool for financial inclusion in Latin America, not only by including more people but also by making the Latin American financial system more efficient. With recent advancements in Chile and Colombia and the interest of countries in the region in adopting instant payments, we will likely see more relevant use cases in Latin America. Open Finance has immense opportunities, and the main one is to ensure that those who did not participate in the financial system have the opportunity to benefit from it.

Walter Pereira

FDATA LATAM REgion Director

Financial inclusion remains a global challenge, with millions lacking access to vital financial services. Yet, within this challenge, lies an opportunity for innovation and collaboration. At Ozone API, we see open banking as pivotal in fostering financial inclusion worldwide. And it’s not just us that thinks so. A number of regulators are putting financial inclusion objectives at the heart of open banking and open finance frameworks. Done well it can create the right conditions to drive significant societal impact. Regulations must however be defined in a way that balances innovation with consumer protection and data privacy.

Put simply, open banking helps to remove some of the very real and significant barriers to financial inclusion. Through access to customer permissioned data, lenders can make more informed decisions, enabling previously excluded groups to get access to credit. It also creates the conditions which allow innovative providers to more effectively target underserved segments. Combining their specialist sector focus with the power of traditional banking and using partnerships to drive better solutions. And finally it helps reduce the cost and friction of payments, ensuring digital payment solutions can spread to more parts of society.

Open banking revolutionises access to banking services, especially in regions like Latin America where cash transactions dominate due to high card payment costs and traditional credit bureaus lack insight into large sections of the population. Additionally, open banking addresses credit history challenges, enabling rapid credit profile building for gig workers in regions like the Middle East. This unlocks access to financial services and empowers individuals to achieve financial goals.

Cross-border collaboration and data sharing among regulators are key to the future of financial inclusion. Enabling consent-based access across jurisdictions allows individuals to use their open banking-based credit history globally, though challenges like regulatory alignment and data privacy persist.

Timely regulatory interventions are crucial to accelerate financial inclusion. Prioritising regulations, facilitating data sharing, promoting interoperability, and safeguarding consumer rights will foster an inclusive environment that encourages innovation and expands financial access for all.

Technologies like open banking, digital payments, and blockchain propel financial inclusion by lowering costs and improving access to credit. Conversely, technologies exacerbating exclusion, such as restrictive data practices, must be re-evaluated to align with inclusivity and affordability principles.

In conclusion, advancing financial inclusion demands collective efforts from stakeholders. At Ozone API, we’re committed to leveraging our expertise, our technology and partnerships to drive change and create a more inclusive financial future for all. Specifically, we help regulators develop the rules and standards needed to enable a secure open finance ecosystem. We also provide robust, proven open finance infrastructure to banks and financial institutions, to reduce the time and cost of implementation, thereby speeding up the benefits of addressing critical challenges such as financial inclusion.

Huw Davies

Co-founder & Co-CEO of Ozone API an FDATA Global Member

From a North American perspective, financial inclusion is a critical issue that hinges on the balance of robust regulatory frameworks, consumer protection, and innovation in financial services. In Canada, financial inclusion has been significantly shaped by the government’s initiative towards an Open Banking regime as announced in the 2024 Budget. The 2024 Budget was powered by the vision that consumers and small businesses should exert full control over their financial data. It paints a picture of an ecosystem where tailored financial products and services aren’t just a possibility but a standard. The Consumer-Driven Banking Framework established by the Canadian government is set to enhance financial inclusion through meticulously designed policies. For instance, it permits applications that develop credit scores, aiming to boost financial outcomes for “credit invisibles.” This strategy not only safeguards consumer data but also fosters innovations that dismantle barriers to access.

In the United States, the Consumer Financial Protection Bureau’s (CFPB) Section 1033 rulemaking is illustrative of a paradigm where consumer rights to access their financial data are placed at the heart of financial inclusion. This regulation, a component of the Dodd-Frank Act, is anticipated to unleash a wave of fintech innovations, thereby expanding the reach of financial services to historically underserved communities. This rulemaking envisions an inclusive financial sector where information is democratically available, allowing for a competitive environment that could lower costs and improve services for consumers.

Both Canada’s and the United States’ approaches underscore the importance of defining financial inclusion not just in terms of access but also in the quality of engagement between consumers and financial services. Use-cases and technologies that have been pivotal include digital identity verification, mobile banking, and personalized financial management tools. These innovations are instrumental in removing traditional barriers, like the need for physical bank branches in rural or low-income urban areas, thus changing the geography of financial services.

However, with innovation comes the challenge of ensuring equitable access and guarding against digital divides that could perpetuate or even exacerbate exclusion. In this regard, both countries are at a juncture where the question isn’t just which technologies should be embraced but how they can be deployed responsibly. As regulations like Canada’s Consumer-Driven Banking Framework and the United States’ Section 1033 come to fruition, a vigilant and adaptive approach is needed—one that continuously assesses the inclusivity of these innovations and the unforeseen barriers they may create. Moving forward, it’s crucial that both nations continue to foster environments where technology serves as a bridge rather than a gatekeeper to financial inclusion.