From Open Banking to Open Finance to Open Innovation
Open Banking and now Open Finance have been greatly innovative developments, unlocking an array of new use-cases and value-add services. However, I believe the Open API Architecture could go even further and unlock even more benefits for both financial institutions and customers.
Throughout my 20+ years working with financial organisations (both corporates and FinTechs) I have been amazed at the evolution of the innovation process. We have gone from each institution building its own in-house applications from scratch. To the acceptance and adoption of open source software. To the current model of implicit collaboration through open APIs that allow specialised applications in different organisations to talk to each other.
Open Banking and Open Finance are spawning innovative integrations and refreshingly user-friendly UI and UX use-cases.
As great as this approach has been, it still imposes limitations on innovation. It requires each application in the eco-system to be developed by a fully-fledged, authorised and regulated organisation in order to fully leverage the power of open banking and open finance. Critically, each third party application is self-hosted and ingests data from the Account Provider (ASPSP) which means the Third Party Provider (TPP) not only has to meet strict hosting requirements but also adhere to strict data handling regulations.
What if we extended the idea of open finance from simply open APIs into an open innovation platform, available for individuals and organisations, large and small, to innovate upon. With an open platform, applications would not be self-hosted on their own servers but run on a central platform hosted by either Account Providers (ASPSPs) or trusted aggregators. As the apps would run on the ASPSPs infrastructure, customer data would not need to be shared by the TPP. In effect, negating the need for app developers to meet prohibitive hosting and data protection requirements.
This is not a new idea or concept - it is what transformed the mobile phone from a closed, limited-functionality device into a hotbed of innovation with mobile apps. The game-changer was Apple deciding that they would not limit apps to only those that they themselves developed. Anyone, anywhere, could develop and publish an app on their platform. Provided, of course, that it met certain standards and adhered to certain rules.
By removing the need for app developers to be fully-regulated companies or technology companies, Apple’s iOS platform (and soon after Android) enabled innovators to focus on what they did best - innovate. Benefiting not just the developers but Apple too.
The same logic applies to Google Chrome and the marketplace for browser plugins.
magine if we had the same in banking or insurance.
How would it work?
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A standard API (similar to Open Banking), SDK and platform for apps to run on.
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Apps run on secure, hosted infrastructure regulated and managed by the ASPSP or a trusted aggregator such as MoneyHub or TrueLayer or Plaid.
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Rather than partner apps consuming data outside the ASPSP, they ingest public data to be used/run within the ASPSP.
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The ASPSP would also act as the recipient of third party data from other ASPSPs.
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Each ASPSP could run their own app store with custom access rules or aggregators could run app stores with standard access rules across multiple organisations.
Rather than all the apps having to be hosted separately by individual organisations, some could sit within a bank’s or insurance company’s platform. Adhering to a common set of standards and specifications, app developers would be able to develop apps that could run within the mobile and web apps of banks or insurance companies.
Inevitably such an architecture would come with challenges and risks that would need to be addressed, not least in the highly regulated environment that UK banking and insurance operate in. Such as:
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Need to develop and maintain technical guidelines and specifications
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Resource requirements to set up, manage and maintain the platform
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Developer-facing support and customer service teams
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Strict and extensive cyber security and data protection controls
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The cost-vs-reward and risk-vs-reward considerations
These challenges are not insignificant. However, the existing open banking framework creates the avenue and tools to start addressing them. Indeed some of the existing work can be extended to address these challenges.
Making the proposed approach a reality would not be a trivial pursuit.
But if achieved, imagine the innovation it would unlock and unleash.
Ella Gago-Brookes
Ella joined techUK in November 2023 as a Markets Team Assistant, supporting the Justice and Emergency Services, Central Government and Financial Services Programmes.
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