New possibilities: How new EU regulations and cross-sector connectivity are redefining Financial Services via Open Banking

There have been ongoing efforts across various industry sectors to deliver best-in-class customer experience, reduce fraud, drive extreme personalization, and enhance risk profiling. However, we still need to see more cohesive experiences offered to customers by service providers. 

Open Finance is an evolution of the Open Banking system that aims to enable cross-sector connectivity and a broad range of cutting-edge APIs. To enable OpenFinance in the market, we would see development in Regulatory Initiatives (focusing on regulatory framework and policies) and Market Initiatives around Baas, Embedded Finance, & Data Monetization.

The introduction of PSD2 regulation in 2015 marked the inception of Open Banking, and now the new EU regulation PSD3 aims to secure payment transactions further. It has introduced several measures on top of existing SCA (Strong Customer Authentication). This new regulation ensures that consumers can make electronic payments and transactions securely and safely within the EU, domestically and across borders, in euros and non-euro currencies.

The primary objective of Open Finance is to facilitate the sharing of customer data across different industries, which in turn delivers better value propositions to end customers. Open Banking has already contributed significantly to driving business innovation and improved customer experiences by providing customers with a seamless banking experience where they can manage all their finances within their existing banking applications. This enables banks to deliver new value propositions and business models that increase transparency and competitiveness in the market.

The next phase of innovation in this space involves incorporating a broader range of products that customers regularly consume, such as Insurance, Pensions, Investments, Loans, and other services (such as telecom, electricity, gas, & broadband), leading to new potential use cases and various types of Application Programming Interfaces (APIs) that will emerge in the coming years. 

Open Credit is a potential use case that could open up regional credit score models and facilitate global credit scores, enabling credit scoring based on payment data and improving the current system of banks using credit scores based on limited data and demographic considerations to decide customers’ creditworthiness.

Open Insurance is another example of a use case that could simplify and expedite insurance processes by enabling data sharing between insurance providers and customers. As a result, there would be more accurate risk assessments, faster claims processing, and more tailored insurance products, ultimately providing greater customer transparency.

We already started seeing some examples of OpenPensions in the UK market, e.g., PensionBee. As an end customer, we see our work pensions being fragmented as one moves from one corporation to another; it reduces the visibility of your pensions in one place and limits your portfolio investment decisions. We see this space evolving further alongside personal finance management.

Open Services 

In the instance of Open Services (telecom, electricity, water, gas, broadband), close collaboration between banks and service providers can ensure that customers always benefit from the best deal that suits their needs. Real-time data sharing between service providers and banks could help customers make informed decisions about their consumption habits, switching to the best available deals at any point in time.

Open Finance has enormous potential for businesses and end customers but would require a significant focus on customer data privacy and customer education/awareness. Despite this, the precedent set by Open Banking’s success and massive digital and mobile uptake means that end customers should adopt new value propositions relatively quickly. 

Ultimately, the Open Finance framework could push toward the sustainability agenda, one fundamental principle to make the right decisions based on the available open data, benefiting the end retail customers and the overall supply chain ecosystem, providing more transparency and opportunity to influence the entire integrated ecosystem.

Read more about the financial landscape and trends emerging at A recap: The financial side of things in 2023 by Globant.