Open Banking and Open Finance – What’s the Difference?

Open Banking vs Open Finance

Two terms that are easily confused in the world of finance are Open Banking and Open Finance.  In this piece, we’ll explore the differences between them.

Open Banking has been in existence in the United Kingdom for 6 years, first appearing in 2016 and endorsed by the FCA (Financial Conduct Authority).  It’s aim being to “open” information of financial institutions in order to provide better financial services to customers – both business and personal.  Open Finance is similar – except that it is an evolved version of Open Banking.

Quick Overview of Open Banking

Open Banking relates to the exchange of information between financial institutions and third-party providers (such as mobile apps).  Before Open Banking, a personal customer or a business customer would have their financial information held in the financial organisation that owned it – for example, a bank account, a credit card company, a building society etc.  That meant that services offered would be limited to those organisations and how customers used their information.  Then came Open Banking which gave customers their freedom to own their own data so they could share it wherever they wanted – not just limited to financial organisations such as banks/building societies etc.  In doing so, this allowed financial organisations to offer better financial products to more customers, based on the sharing of financial information.  For example, Open Banking meant the introduction of better lending/borrowing products, better investment products, mortgage products and more, specifically tailored to customers’ needs.

Before we move on, Open Banking doesn’t mean that customers’ financial information is open for all to see – it is still securely stored as all transfer of information is done through specialist software and it’s automated using APIs (Application Programming Interfaces).  This allows financial information to move from one organisation to another very quickly and safely without the need to manually key in data.

Open Finance

Open Finance has taken the concept one step further and doesn’t just involve financial institutions – it also includes other finance-related organisations such as investment services, insurers and pensions. Using authorised captured data, these types of companies can also develop their own products tailored to customers’ needs, like Open Banking.

The end aim of Open Finance is to improve people’s personal and business finances. It captures the customer’s entire financial footprint and opens it up to trusted third-party APIs.  In doing so, it can create personalised experiences so customers can make the most of their money and manage it better because the data and information provided by those using Open Finance helps them to make better financial decisions.

In addition, it can help drive industry innovation, give consumers the opportunity to make intelligent decisions with their data, support financial wellness and reduce fraud and risk.

Open Banking vs Open Finance Summary

Open Finance like Open Banking is safe.  No information is disclosed without the customer’s consent and even when consent is given, all data is kept secure through API software. As well as reducing the risk of online fraud, both provide remarkable benefits to customers and businesses with more favourable financial product offerings.  Both Open Banking and Open Finance will continue to evolve over time, bringing even more convenient, safe, secure and lower cost tailored financial products to the market.