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. 

Bank note

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 

With the FiDA proposal the EU Commission lists the following benefits for customers and data users: 

– Market conditions are constantly changing, and today's answers provide no guarantee of tomorrow's success.

This is what you should to do to prepare for PSD3 and FiDA: 

  1. Understand what is coming: 
    Conduct workshops and ensure competence development and training. Identify the specific areas relevant to your business. 

  2. Involve relevant stakeholders: 
    Establish a cross-functional team consisting of individuals from legal, compliance, IT, strategy, and business to discuss implications and align understanding. Stay updated on any changes, clarifications, or supplementary regulations issued by the authorities. 

  3. Conduct a maturity analysis: 
    Identify any gaps or areas requiring changes to comply with the new regulation. 

  4. Develop an implementation plan: 
    Define a clear roadmap describing the necessary steps, milestones, and timelines for implementing the regulations, along with associated roles and responsibilities. 

Prepare your business for the future – today! 

With the new proposal, the European Commission initiate a new and reinforced wave of innovation, aiming to further stimulate increased innovation and competition - on the customers' terms. 

Incumbent financial institutions and new players should therefore continuously work to leverage changes in the regulatory framework, innovative technology, and new business models to create new products and services. Market conditions are constantly changing, and today's answers provide no guarantee of tomorrow's success. 

Itera and Cicero Consulting, our specialist company within banking, insurance and fintech, believe that the winners of the future are those who view Open Finance as both a threat and an opportunity, and prepare for the future, today. 

Therefore, we have developed an agile and efficient strategy process on how established companies should approach the upcoming changes. 

Itera Open Finance
  1. Strategic position: 
    By understanding your company's strategic current position, business drivers, and direction, we create a shared understanding of the current situation and a realistic range of possibilities for further exploration. We develop this picture through collaborative work in groups, interviews, and available insights within the organization. 

  2. Scenario development:  
    Predicting the future is impossible. However, through strategic use of scenario development, we can describe an alternative narrative or a new reality – an objective description of a possible future. Scenario development is a tool that describes external factors through a credible story.

    We section the future scenarios into different categories, ranging from the absurd – will never happen – to the future we want to materialize. The goal is not to create perfect scenarios, but to use them as a tool to immerse ourselves in the future and understand what the company can or should address, as well as what cannot be avoided.

    Itera and Cicero Consulting contribute by curating data, insights, and defining scenarios, while we challenge you with our external perspective, where we provide you with our opinions, perspectives, and recommendations within the given scenarios. 

  3. Future backcasting:
    We use scenarios to identify risks, opportunities, and possible actions we can take to adapt. Future backcasting is a tool to work towards the predicted possible futures and the future we want to see.

    This provides an overview of one or more hypothetical future scenarios and works backward to identify the steps needed to connect these specified futures to the present.

    In this way, we can take actions to develop the necessary resources needed to achieve a desired future or avoid an undesirable one. 

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How can your business utilize the markets force of change to your advantage, in a way that you end up with a larger share of the consumers, in the battle against your competitors?