Overcoming the biggest challenges There are three main obstacles on the road to Open Finance: 1. Access to data How do we make it easy for providers to access data from a broad range of financial institutions? Technological integrations (APIs) must be built to support the efficient flow of data but building integrations that work with each financial institution is a tedious and fragmented process. To facilitate this, data and API standardisation needs to be implemented in order to make the task of providing access to data across the whole ecosystem simpler. On the other hand, the reluctance of institutions to share highly valuable customer data will restrict access. This means regulators will need to step in – as they did for Open Banking – to create a legal environment that opens financial data for third parties to access through standardised APIs. 2. Analysing the data Making sense of huge volumes of data is already a gargantuan task, even when it “only” covers Open Banking data. This becomes even harder if data from a wider set of financial products is considered. FinTechs will need advanced categorisation engines and other analytical tools to structure and analyse the information they receive. FinTechs and companies can have access to all the Open Banking data in the world, but if they cannot create a way to analyse it, they will struggle to draw out any valuable insights. Leading providers like Money Dashboard have already done the legwork when it comes to data analysis – its Open Banking categorisation engine has been trained on over 10 years of data, which allows it to accurately classify consumer transactions. Other providers must follow suit if they haven’t already. 3. Compliance Whenever personal information is shared, it is crucial to have a stringent compliance framework in place, to prevent any breaches or misuses of data. This, however, is not the challenge – the real challenge is ensuring that regulation protects the consumer, without stifling innovation. In order to achieve this delicate balance, regulators will need to have open and constructive dialogues with Open Finance providers, and together create an environment that nurtures innovation without threatening data privacy. An M&A outlook Open Banking is still a relatively early-stage technology, so we will continue to see a lot of investor activity in this space, with the market expected to grow to $43 billion by 2026. Companies with an innovative product and state-of-the-art tech will have no problems raising funds. For instance, UK-based Bud raised $80m in June to continue to scale its AI-based Open Banking platform and expand internationally. In the M&A space, we expect to see an increase in activity as small, unprofitable companies (who have developed good technology) might decide to look for a buyer as Venture Capital funding becomes harder to access. Some of the industry’s largest players could also merge in order to consolidate the market, create synergies and expand their reach. Notably, Apple’s recent acquisition of Credit Kudos, which develops software that uses consumers’ banking data to make more informed credit checks on loan applications and is a challenger to the big credit reporting agencies (Equifax, Experian and TransUnion)., signals interest from further afield. With more and more businesses making inroads into financial services, M&A activity in this space is heating up. Having advised on a number of M&A and fundraising transactions in the Open Banking space, Royal Park Partners have seen first-hand the impressive leaps companies are making to transform Open Banking and increasingly Open Finance into a positive and productive tool for customers and businesses. In the future, Open Finance will provide the infrastructure to connect all financial products that consumers and businesses use, while also providing access to innovative new solutions. The digital imperative for financial services firms cannot be understated. In order to ensure their (and their products’) relevance in the future, they will have to embrace Open Banking and Open Finance technology. Finance Monthly. F i nanc i a l Innov a t i on & F i nTech 23
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