Spotting the Open Finance opportunity
Open Finance is on its way and future positions for incumbent financial institutions and challengers alike must be taken now.
Not a revolution, but a slow evolution
Despite the limited impact of the revised Payment Services Directive (PSD2) on end-users access to innovative, holistic services, a new wave of innovation is now being forced by the EU. There is no indication that the European Commission will ease off before witnessing a change in industry dynamics characterized by increased competition and innovation, facilitated by the availability of financial data.
In the summer of 2023, the European Commission published its proposals for the next phase of financial regulation in the EU. This included the third Payment Services Directive (PSD3), which will be linked to a new Payment Services Regulation (PSR). Additionally, the Commission presented its initial position on a new framework for access to financial data (FiDA).
In summary, PSD3/PSR aims to address improvements to existing payment service regulations from PSD2, while FiDA is introduced as a new element that generates significant excitement in the industry. FiDA will democratize end-users data and information on a broader level beyond payment and account information, as covered in PSD2. In other words, FiDA is the catalyst that will enable Open Finance.
Industry convergence will accelerate with the increased access to customers' financial data.
FiDA aims to promote better access to consumers' and businesses' financial data, thereby enabling them to realize the benefits associated with improved financial products and services. It can be seen as a kind of GDPR, but for financial data.
With FiDA, the European Commission intends to foster innovation by granting licensed third-party companies the opportunity to utilize financial customer data that was previously exclusive to financial institutions. This represents a great opportunity for fintech companies, retail companies, providers of accounting and financial systems, and other data-driven platform companies in both consumer and business markets.
At the same time, it provides opportunities for established players in the financial industry to rethink their relative position in the market.
By combining data from various data owners, it opens new doors for innovative services for customers willing to grant such access. The proposal from the European Commission encompasses customer data that financial institutions typically collect, store, and process as part of their regular interactions with customers.
The following customer data is included in the proposal:
- All types of loan products
- Savings products
- Financial instruments, including data from suitability and appropriateness assesments, as well as sustainability-related data.
- Cryptocurrencies
- Pension products
- Property and casualty insurance
This is how the EU Commission view the flow of financial data among different financial providers after the implementation of FiDA.
Source: EU Commission June 2023 https://finance.ec.europa.eu/system/files/2023-06/230628-payments-fida-factsheet_en.pdf
With the FiDA proposal the EU Commission lists the following benefits for customers and data users:
- Increased access to key customer data sets would boost innovation
- Enabling new services and revenue streams for data users
- More transparency and control over their data-sharing relationships
- Increased trust and confidence in data sharing
- More innovative and cheaper financial services to choose from
Let's explore the possibilities of Open Finance together
The European Union is prioritising increased competition and transparency to make financial services more accessible. While Norway and Nordic countries may not face the most pressing challenges, EU regulations still significantly impact us.
The FIDA regulation is a comprehensive initiative designed to enable the sharing of customer data among service providers, contingent on customer consent. This development could pave the way for new entrants in the financial sector, driving competition and innovation across the industry.
In an era where the financial landscape is evolving rapidly, it is crucial to stay ahead of these developments. Understanding forthcoming legal requirements—and how to leverage them—can yield substantial competitive advantages in the years ahead. We are committed to helping you and your business navigate the opportunities presented by FIDA and Open Finance.
