Open Finance
Open finance extends open banking beyond payment accounts to the rest of a customer's financial life — savings, investments, pensions, insurance, mortgages, loans — so that, with the customer's consent, a third party can read the data and initiate actions across all of it through standard APIs. Where open banking made a bank account portable, open finance makes the whole balance sheet portable.
- Also known as
- Financial data access, Open banking 2.0
- Used at
- lending decisions on full financial data, personal-finance aggregation, pension and investment switching, SME accounting and treasury tools
- Binding
- increasingly — the EU's proposed Financial Data Access regulation (FiDA, 2023) would require it across product lines; Australia's Consumer Data Right already covers banking and energy; the UK is designing its framework on the open-banking base; the US CFPB's rule on personal financial data rights (2024) covers accounts and cards
- Typical mechanism
- consent-based API access with a licensed third-party provider, a data holder obliged to expose the data, and a scheme that sets standards and liability
- Typical deals
- Mastercard–Finicity ($825m, 2020), Visa–Tink (about €1.8bn, 2022), and the abandoned Visa–Plaid ($5.3bn) — the aggregators became the infrastructure
- Parties
- the customer, the data holder (bank, insurer, pension provider), the third-party provider, and the regulator that licenses it
How open finance works in practice
Open banking under PSD2 obliged banks to let licensed third parties read a customer's payment account and initiate payments from it. It worked — millions of consumers and SMEs use it for account aggregation, lending and pay-by-bank — and it stopped at the current account. A lender assessing an applicant could see their salary and spending but not their pension, their mortgage or their investments; a financial-planning app could show half the picture.
Open finance closes that. Under a framework like FiDA, a data holder in any covered product line must give a licensed provider access to the customer's data on request, through APIs, on standard terms, usually against a reasonable fee. The provider can then build products on the whole picture: a mortgage decision on income, assets and existing debt in one pull; a pension consolidation that finds the pots and moves them; an SME cash-flow tool that sees the bank, the card acquirer, the invoices and the loan.
The commercial question is who pays whom. Open banking was free to third parties, which is why banks built the minimum; open finance frameworks are being designed with compensation for data holders, which changes the economics of the whole layer. For fintech M&A the assets are the connections and the licences: the aggregators that built thousands of bank integrations became the acquisitions of the card schemes, and the next generation is being built across insurers and pension providers.
Example
An SME lender assesses a €150,000 loan application. With open banking it pulls 24 months of the company's two bank accounts in a minute and sees turnover and a €40,000 balance. With open finance it also pulls the card acquirer's settlement history, the accounting platform's receivables, the directors' personal mortgage and pension positions, and the existing lender's loan schedule. The full picture shows a €90,000 balloon repayment due in eight months that the bank statements do not, and the lender restructures the offer to €150,000 over 36 months with the balloon refinanced inside it. Decision time falls from four days to twenty minutes, and the default rate on the cohort underwritten this way runs at about 60% of the old book's.
Common mistakes
- Building a product on one bank's or one aggregator's API and calling it open finance; the value is the breadth. - Treating consent as a checkbox at onboarding rather than a scope and a duration the customer can see and revoke. - Assuming data holders will expose data for free as they did under PSD2. - Pulling data without a plan for storing, refreshing and deleting it under data-protection law. - Valuing an aggregator on the number of connections without checking how many are screen-scraping arrangements a regulator can end.