How Open Finance Is Making Financial Services Accessible and Affordable for All

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By Simon Paris, Chief Executive Officer, Finastra

If we consider financial services today compared to just five years ago, the picture is quite different. Back then, for example, a worker in Spain who wanted to send money back home to Manila may have spent a large percentage of their family’s support on remittance fees. Or someone with a low income in the United States may have struggled to access banking services that effectively catered to their situation.

With the rise of fintech (financial technology), other technologies and industry collaboration, these services are much more relevant and personalised to individual needs today. That same worker in Spain can send their family money at a fraction of the cost in real-time. Meanwhile, lower-income earners in the US can access services and educational tools that help them effectively make their money work better for them. Financial institutions also benefit from greater market opportunities and chances to provide services that genuinely make a difference.

Everybody wins because, today, finance is open. And the industry is seeing the benefits. In fact, nearly one in two (48 percent) of global institutions surveyed in Finastra’s “Financial Services State of the Nation Survey 2023” cited open finance as a “must-have” for their institutions. Moreover, nearly 9 in 10 (85 percent) agreed that it was making banking more collaborative and having positive impacts.

Unpacking the meaning of open finance

For finance to be truly open, three technological and socio-economic concepts are needed in the market: platformification, finance for good and banking in context. And today, we are seeing them all occur.

Firstly, platformification has transformed the financial-services industry as we know it. Services have been unbundled and broken down into specialised components that nonbank businesses are recompiling to bring innovation and competition to the industry. As a result, for example, platforms such as Shopify and PayPal can offer merchants short-term working-capital finance, while consumers can pay for goods and services via instant instalments and buy now, pay later (BNPL) at the checkout.

Secondly, the advancement of finance for good is helping to create a world of more equal, accessible and inclusive finance. Collaborative and technological ecosystems built on cloud technology are driving positive social impacts. Whether they are technology solutions catering to underbanked segments or collective efforts to bring more women into financial services, these ecosystems bring knowledge and resources together for communities’ good.

Thirdly, we now see banking in context everywhere. The traditional financial-services model has been divided into those firms that build financial solutions and those that supply, connect and adapt solutions to individual customer needs. As a result, embedded-finance solutions are increasingly being integrated into everyday transactions, leading to contextual, conscious banking at the decision-making point.

Clearly, open finance is here. But what do we mean by it?

To me, it simply means that banking, financial services and financial ecosystems are open. Open to new service offerings, revenue streams and markets; enhanced customer experience and retention; improved risk management; and increased competitive advantage. Underpinned by open technology, mindset and culture, open finance comes down to three main areas: enabling new financial ecosystems, driving sustainable decision-making and supporting positive societal change.

Enabling new financial ecosystems

Financial ecosystems are all about enabling new marketplaces and economies through open-finance technology and empowering businesses with diversified revenue streams by fostering competition, collaboration and innovation. With the right technology, institutions can enhance operational efficiency and adapt quickly to changing customer demands while elevating profitability, customer satisfaction and loyalty.

The benefits of an ecosystem approach are centred around connection, making it easier to integrate innovation, expertise and customer-centric capabilities while enabling collaborative problem-solving and better use of shared insights.

With composable banking, a consequence of platformification, institutions can compile components around specific customer personas—the immigrant worker in Spain, for example—or innovation ecosystems. It means tailoring a solution to a customer’s specific need rather than simply selling the product at hand.

These new financial ecosystems also facilitate wider access to banking services. Open finance enables nonbanks to provide banking services through banking as a service (BaaS) and embedded finance. This opens up financial services to a broader demographic, creating new routes to the market and fresh revenue sources for financial institutions.

Driving sustainable decision-making

For sustainability, financial services play a key role in driving investments and facilitating transitions to a low-carbon economy. Open finance empowers sustainable decision-making by seamlessly connecting capital with impactful initiatives.

A major benefit of open finance is increased access to data. With access to third-party environmental, social and governance (ESG) datasets via OpenAPIs (open application programming interfaces), financial institutions can comply with new regulations effectively and understand their risks and positions better, fostering an environment that encourages sustainable growth.

Another benefit is supporting impact investing by enabling the channelling of funds into green initiatives and building sustainable and profitable portfolios. This ensures that investments not only yield financial returns but also contribute positively to environmental sustainability.

Finally, open finance is pivotal in digitising trade supply chains, making global commerce more inclusive and transparent. By emphasising the provenance of green goods, eco-friendly practices can be integrated into trade transactions. Digitisation also opens up the ecosystem to a broader range of participants, which can help tackle the roughly $2.5-trillion trade-finance gap.

For example, digital infrastructures built on digital identities and e-invoicing can enable artificial intelligence (AI)-led credit decision-making based on real-time transaction data, with the additional ability to fill credit-history gaps using supplementary or alternatively sourced data. As a result, banks can better serve more micro, small and medium-sized enterprises (MSMEs)—including by offering them sustainability-linked products that support their journey to “green”—while reducing onboarding costs.

Supporting positive societal change

Open finance can transform societies, reduce biases and shape a progressive future. With technology, we can help bridge gaps to drive economic empowerment and better reach the unbanked and underbanked. It means, for example, bringing people out of poverty and providing those first steps towards savings, wealth creation and financial management.

With this type of societal change, the industry can champion financial inclusion. By maximising digitisation and the power of connected ecosystems to transcend geographical and financial barriers, finance becomes more democratised. More people can access banking services, whether they are in the poorer sections of society or niches with unique needs not served by traditional, monolithic banking. At the same time, with the power of open finance, the cost to serve (CTS) is reduced, making those new markets more attractive for institutions.

Open finance also empowers economic development through technology, such as enabling customers to embed point-of-sale loans for small businesses. This enhances sales, boosts production and increases employment, fostering a more dynamic ecosystem of growth and prosperity.

Finally, open finance powers innovation. It removes traditional obstacles, fostering an environment in which the financial-services industry can co-create and co-innovate to develop practical, consumer-centric financial products and services.

Maximising the value of open finance

Several market accelerators are significantly speeding up the growth and development of financial services. Financial institutions must embrace these accelerators to maximise the true value of open finance.

The first accelerator is composable banking, which enables financial institutions to create flexible and customer-centric solutions. By breaking down banking services into their component parts, banks can reassemble them to best serve their customers’ needs. This ability to personalise and adapt services according to changing demands helps to make financial services more accessible and inclusive.

The second is embedded finance, which enables seamless and convenient access to services within the context of a customer’s everyday activities. Non-financial services firms can provide integrated and contextual experiences while selling products to their customers through APIs and software development kits (SDKs). With embedded finance, banks can enable enhanced user experiences and open up new revenue streams.

Next up is BaaS, which provides a complete infrastructure platform for companies to create financial services, supporting the integration of financial services into nonbanking platforms. This is a critical component of the broader embedded-finance ecosystem.

Finally, we have generative AI (GenAI). This technology accelerates open finance by creating more inclusive data and aiding in the development of financial products. It can enhance decision-making, improve communication, streamline onboarding, aid ESG performance measurements, assist with fraud and risk management, and deliver personalised financial services to create a more efficient and inclusive financial system.

When combined with these accelerators, open finance’s potential is limitless. Whether making payments faster and more efficiently, streamlining regulatory compliance such as anti-money laundering (AML), making more informed lending decisions for small businesses or green finance, delivering greater efficiency, transparency and agility with Treasury as a Service (TaaS), or driving positive societal change—it has changed the financial-services industry as we know it.

We are fortunate to live in an age when finance is open. Institutions must continue to use this opportunity to work together and innovate to deliver outcomes that benefit all of society.