We are already used to Open Banking, which has become the foundation for communication within the traditional banking system. However, today a much more ambitious vision is emerging on the horizon, namely Open Finance. Although these terms are often confused, they represent different stages of evolution, notes Artem Lyashanov. Understanding this difference is critical for everyone.
Why should we even consider this? Because financial products are becoming increasingly interconnected. Knowing where regulation and innovation are heading is already a tool for your personal and business success.
What is Open Banking
Open Banking is a secure way to share your financial information with trusted third parties, subject to your express consent. It works through APIs (application programming interfaces), which allow different services to communicate with each other.
- The main focus is on bank accounts and payments. Banks are opening up data on balances, transaction history and details to regulated fintech companies;
- The change has been driven by directives (e.g. PSD2 in the EU) that have obliged banks to provide access to data in order to stimulate competition and protect consumers;
- We have applications that collect data from different banks on one screen, faster cardless payments and personalized loans.
The real value of open banking is not in technology, but in breaking the monopoly on data, which has forced financial giants to finally fight for user loyalty through innovation.
What is Open Finance
Open Finance envisages a world where you can securely share data about all your financial products:
- Investment portfolios (stocks, bonds);
- Pension savings;
- Insurance policies (life, property, auto);
- Mortgages and loans in non-bank institutions.
The goal is to create a complete, 360-degree picture of your financial situation. It’s no longer just about “how much money is on the card,” but about “what is my total capital and how to manage it effectively.”
If Open Banking opened the door to your bank account, then Open Finance opens the door to your entire financial office.
Artem Lyashanov
Key difference
The main difference is in scope. Open Banking is segmented by nature, it works only within the banking vertical. Open Finance is a horizontal transformation. It blurs the lines between banks, insurance companies, and investment funds.
While Open Banking is already a mature concept with clear rules, Open Finance is in the process of being actively formed. It seeks not just to stimulate competition in payments, but to provide holistic wealth management for every smartphone user.
Why it matters
For businesses and consumers, the transition to Open Finance opens up opportunities:
- Instead of template advice, you get strategies based on your real income, debts and insurance risks;
- Data on rent or utility payments can help those with no long banking history get a loan;
- Imagine a single dashboard that calculates your taxes, optimizes insurance premiums and reviews your investment portfolio depending on the events in your life.
Of course, such openness also carries risks. The most important of them are privacy and security. The more data we transfer, the higher the standards of encryption and access control should be.
In addition, there is the problem of technical compatibility. Many financial institutions still operate on legacy systems that are difficult to integrate with modern APIs. Also, regulators in different countries have yet to agree on common rules of the game for insurers, brokers and banks at the same time.
