Open finance throws light on the possibility of transforming the way consumers and businesses use financial services. Let’s define it for you first.'Open Finance' is the term used to describe the extension of Open Banking data-sharing principles to enable third-party providers to access customers' data across a wider range of financial sectors and products, including savings and investments. This broad scope of Open Finance, including its focus on individuals' total financial lives, makes it particularly relevant and important for the financial advice and wealth management industries. It could make it easier to compare products, prices, and product features and switch products or providers.

It could help widen access to advice and support in decision-making. It has the potential to improve and upgrade competition among financial services providers, spurring innovation, the development of new services, and increased demand. It could increase business productivity and boost access to commercial lending.The foundation of open finance is the idea that the customers who use financial services control and own the data they provide and produce on their behalf. Re-use of these data by other providers takes place in an ethical and safe environment with informed consumer consent. This would mean that a financial services customer who consents to a TPP (third-party provider) accessing their financial data could be offered tailored products and services as a result. Access would be provided by that customer’s existing financial services provider under a clear framework of consent.

An ideal vision for open finance is one in which:

• Consumers and businesses can grant access to their data to trusted third-party providers (TPPs) and, in return, gain access to a wider range of financial services and products, have greater control over their data, engage with their finances, and be empowered to make better financial decisions.

• Increased use of open finance services spurs greater innovation, benefiting consumers by providing a broader range of products and services that better suit their needs

• Widespread use of new services improves the financial health of consumers and businesses in the UK.Open finance would facilitate financial management applications that look across all products held by a business or an individual. This would give them a holistic view of their financial circumstances. Open finance allows firms to develop services that benefit consumers and businesses, improve competition and financial capability, and facilitate inclusion.

These include:

• Personal financial management dashboards that enable the customer to understand and optimise their overall financial position (cash flow, savings, investments, spending, and goals) These could, for example, help a consumer understand whether to put an additional £100 into a savings account, mortgage overpayment, or pension and execute that payment on the consumer’s behalf.Automating switching and renewals that remove friction and encourage shopping around This could help consumers get better deals and increase competition. Access to data could give customers more competitively priced quotations based on the product features that they are most interested in.New advice and financial support services for mass market consumers making financial decisions make it easier to share comprehensive information with advisors.More accurate creditworthiness assessments and increasing access to credit by enabling third parties to review cash flow holistically and identify suitable credit products for businesses and consumers, meaning:

• Access to cheaper finance

• Supporting credit options for consumers currently finding it difficult to access credit

• Restricting access to those unable to afford credit

• Tailored and more readily available debt advice

Open Finance will prove to be a catalyst for customers to make investments. It will provide:

• Help consumers better understand their investments and consider whether they continue to meet their needs by providing up-to-date information on costs, tax treatment, performance, risk, and other factors (e.g., asset mix, exit fees, etc.).

• Provide an aggregated view of investment

• Help consumers manage investments (easier buying or selling of investments, or moving investments between products and providers), leading to the potential for higher returns and/or lower costs.

• Advise or provide better information about alternative products or tax-advantaged wrappers. Provide a quicker and easier fact-finding process to reduce investment advice and investing costs.

• Help ‘de-mystify’ investing.

• Facilitate switching among platforms to lower investment costs.

Open finance requires the digitalization of data, giving businesses capabilities in terms of understanding and servicing their customers. It would allow them to offer new products to current customers and identify new and upgraded ones. Established firms can offer ‘TPP’ services themselves.Open finance has the potential to transform the way financial services work for consumers and businesses.

Greater sharing of data could lead to

• Customers with certain characteristics are excluded from

• Certain markets.Exclusion of consumers who opt out of sharing data

Misuse of data

• Consumers may provide consent to share their data but not be aware of how their data is ultimately used, leading to some use that the consumer had not contemplated or intended.

• There may be increased risks of fraud if all a consumer’s data is available through one single point of entry or is held by firms with poor governance and system security.

• Out-of-date, incomplete, or incorrect data being shared with a TPP could result in incorrect recommendations or advice, a switch to an inferior product, or the wrong price.

Poor consumer outcomes

• Reducing the friction associated with transacting without advice also increases the chances of harm to a consumer, where it would have been better to take advice.

• Reducing the friction associated with carrying out larger transactions, such as investment transfers or pension consolidation, may lead to harm where advice is not taken.

• Auto-switching could lead to consumers becoming less engaged and, over time, unaware of whether their products are still suitable or not.

• Auto-switching could lead to consumers becoming focused solely on price and giving less importance to other factors affecting suitability.

Competition

• If certain firms choose not to participate in open finance, it could lead to the exclusion of specific products and reduced choice for consumers. This could hurt competition rather than enhance it.

• Similarly, if providers start to tailor products to match dashboard features, this could lead to increased homogeneity of products.

• It is also possible TPPs (third-party providers) could design their tools to appeal to consumers but oversimplify choice, resulting in providers focusing on price or product features at the expense of others. In such cases, consumers may not have all the information needed to make an informed decision.

• If only a few TPPs dominate the open finance market, this could result in weak competition and a lack of innovation, undermining the main objectives of open finance.

• The relationships between TPPs and product and service providers are also important to consider. On the one hand, TPPs partnering with established firms may boost competition if it enables new TPPs to enter the market or for existing TPPs to grow.

• However, if commercial alliances form with particular providers or established firms look to set up their own providers, TPPs may be incentivised to only offer, or favourably list, the products and services of those partners.

• Competition risk could arise in how open finance is implemented, particularly if firms do not offer equal access, putting their competitors at a clear disadvantage.

Competition

• There could be concerns from an operational flexibility perspective if firms were required to make significant changes to their IT systems to support open finance.

• This could result in firms being more susceptible to system outages. However, this would depend on the changes required.

• The upfront costs of investing in open finance, especially for established firms, could deter investment in other core business areas.

Reminding ourselves of the above quote: ‘Only by doing something different can one expect a different result, It will be exciting to see the new innovations—many of which we can’t even imagine—built on this new and fantastic world of open finance.