The financial services landscape is changing at an unprecedented pace. Open finance, an emerging model built on the principles of open banking, promises to redefine how consumers and businesses interact with financial products and services. However, while the potential for innovation is vast, the question remains: are we ready for this next phase of financial evolution?
What Open Finance Really Means
Open finance goes beyond the initial scope of open banking. Open Banking largely focuses on payments and account information. Whereas open finance expands this ecosystem. This includes a broader range of financial products, credit scoring, lending, pensions, insurance, and more. Therefore, this makes it possible for consumers and businesses to seamlessly integrate various financial services.
The key differentiator lies in the open exchange of data across multiple financial sectors. Consumers, empowered by control over their own data, can opt to share their financial information with third-party providers to access tailored products and services. For example, a consumer may share their credit history with a lender for a personalized loan offer or use their pension data to gain insights into retirement planning options. The benefits are undeniable. Consumers stand to gain from more competitive pricing, innovative financial products, and better-tailored services. Financial institutions, on the other hand, can offer more personalized, data-driven products while reducing operational costs. Open finance could foster an entirely new financial ecosystem that drives growth, enhances customer loyalty, and improves financial inclusion.
Regulatory Readiness: What’s Missing?
One of the biggest challenges to the adoption of open finance is the regulatory landscape. While open banking has garnered significant attention globally, open finance’s expansion into additional sectors is facing regulatory hurdles. Different regions are adopting varying approaches to regulate open finance, resulting in a fragmented global landscape.
For example, the European Union’s PSD3 (Payment Services Directive 3) aims to create a more integrated, secure financial services ecosystem by enhancing open banking regulations. Similarly, the UK’s Smart Data Taskforce, supported by the Center for Finance, Innovation and Technology (CFIT), is working to expand open banking principles across sectors such as finance, energy, and telecom. In the U.S., the open finance regulation is advancing under the Consumer Financial Protection Bureau’s Section 1033 rule, which mandates banks to provide free, secure access to consumer financial data. However, implementation is still evolving, with industry groups raising concerns about data security and compliance timelines. In India, the Account Aggregator model offers a live interoperable framework for open finance, with adoption expanding across banking, mutual funds, pensions and insurance sectors. While the ecosystem is active, its broader economic impact is still unfolding.
While these efforts are promising, significant gaps remain. For one, consent frameworks remain inconsistent across jurisdictions. In many cases, it’s unclear who is responsible for ensuring consumer consent, how consent can be revoked, and the implications of third-party data access. Additionally, regulatory clarity around liability in case of data breaches or other failures is still murky. Global standards for data sharing and security are also lacking, further complicating international cooperation.
The Data-Sharing Dilemma
At the heart of open finance lies one of its greatest challenges: data sharing. While consumers stand to benefit from greater control over their financial data, questions about privacy, security, and ethical data use persist.
Who owns the data? In many areas, the consumer is presumed to own their data, but when it’s shared with third parties, who is responsible for securing it? These questions become even more complicated when considering the potential for third-party breaches. The introduction of open APIs to facilitate data sharing increases the attack surface for cyber threats, leaving institutions vulnerable to hackers and data leaks.
Security concerns aren’t just technical; they’re ethical. Can consumers truly trust financial institutions and third parties to handle their data with the utmost care? The answer is not straightforward. Even with robust data protection laws such as the GDPR in Europe, the complexities of cross-border data transfers and inconsistent security standards across regions raise questions about the real security of shared financial data.
Are Banks and Fintechs Technologically Ready?
The technology behind open finance largely hinges on the use of APIs to facilitate data exchange between institutions and third-party providers. While fintech companies have long been at the forefront of API development, traditional banks are playing catch-up.
In many cases, banks are still struggling with API maturity. Although large financial institutions like JPMorgan and HSBC have made strides in API development, many regional and smaller banks are still in the early stages of adopting open APIs. The level of sophistication required for APIs to handle complex data sharing, while maintaining a seamless customer experience, requires significant investment in infrastructure, developer expertise, and data security.
One of the challenges facing banks is ensuring the performance and reliability of their APIs. Open finance depends on the ability to share data quickly and securely, but legacy systems often struggle to keep pace with modern demands. The need for interoperability between different financial ecosystems adds another layer of complexity. Even as API ecosystems expand, institutions must ensure seamless communication between different APIs, a hurdle that’s not always easy to clear.
Many mid-sized banks face challenges when integrating open APIs, particularly around legacy infrastructure and latency. A 2024 Deloitte study found that only 28% of mid-tier banks reported high readiness in API performance metrics, underscoring the technological gap.
Conclusion
Open finance is undeniably the future of the financial industry. However, we face significant hurdles in terms of regulatory clarity, data privacy, and technological readiness. While the potential for growth and innovation is immense, a strong and cohesive regulatory framework, alongside robust data protection mechanisms, must be developed.
Moreover, while banks and fintechs are advancing in terms of API adoption and data-sharing capabilities, there’s still much to be done before the financial ecosystem is fully ready to support the open finance model. Interoperability, consent management, and cross-border cooperation are just a few of the key challenges that remain unresolved.
The promise of open finance is exciting, but its realization will require time, collaboration, and concerted effort from financial institutions, regulators, and technology providers alike. We may not be fully ready, but readiness is being built today.
As Pradnya Gugale, Principal Analyst, QKS Group states “Open Finance is a powerful vision- one that promises a truly user-centric financial ecosystem, where individuals control and benefit from their own data across banking, lending, insurance, and beyond. But vision alone isn’t enough. To realize this future, we need stronger foundations which include interoperable APIs, consistent global standards, and above all, user trust. The momentum is real, but readiness remains uneven. The next few years will determine whether Open Finance becomes transformative or just another missed opportunity.”