Open finance vs open banking: are they the same thing?

As a natural continuation of open banking, the opening up of payments and data services, open finance is designed to further enable competition in highly secure and innovative ways, benefiting both businesses and consumers.‍

But the difference between open finance and open banking is not entirely obvious, so in this blog, we’ll explore both in more detail, and look at how they can help businesses and consumers alike.‍

Open finance vs open banking

This outline shows how Third Party Providers (TPPs) are using open banking to provide a wide variety of different services to UK consumers.

(Open Banking, 2022)

Open finance is defined by the UK’s Financial Conduct Authority (FCA) as the “extension of open banking-like data sharing to a wider range of financial products, such as savings, investments, pensions and insurance”. To summarise, open finance is a range of financial products supported by open banking technology.‍

Is open finance the same as open banking?

In addition, despite them being different concepts, open banking and open finance are based on similar principles. Common grounds include enhancement of innovation, fair and strong competition, high-level security and a clear focus on consumers. For example, the process of credit checking for a loan would become more transparent and a lot faster with an open finance third-party provider.‍

How is open finance beneficial to the UK market?

Currently, there is no regulation for open finance. However, a group of large and mid-sized fintechs have formed the Open Finance Association to develop the underlying architecture of open finance in the UK (The Fintech Times, 2022). The association is aiming to “promote a healthy and sustainable fintech framework, in which consumers and businesses all benefit from improved, innovative services”, according to the Association’s Chair, Nilixa Devlukia.‍

In the UK, appropriate action is being taken to set the right open finance ecosystem, with fintechs and policymakers working together. The lessons learned from open banking will make it easier to predict and understand the possible challenges and vulnerabilities associated with creating a sustainable and secure environment for the open finance industry to grow.‍

Below is the regulatory timeframe of open finance in the UK, as expected by Deloitte. We have also provided you with a mini glossary to help make the jargon less confusing.‍

  • Smart Data: an efficient and secure system that allows trusted third parties to access customer data held by firms (BEIS, 2020),
  • Smart Data Working Group: a group aiming “to support the development of systems and standards that facilitate smart data innovations” (GOV.UK),
  • Corporate Finance Institute (CFI): an educational platform for finance professionals,
  • The Department of Business, Energy and Industrial Strategy (BEIS): a UK ministerial body responsible for business, energy, science and innovation, climate change and industrial energy,
  • Financial Conduct Authority (FCA): the financial services and markets regulator in the UK.‍
(Deloitte, 2022)

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