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The promise of Open Finance is talked about everywhere. Our own Chief Advocacy Officer recently shared her perspective in American Banker, and a recent Forbes article says Open Finance is what Open Banking wants to be when it grows up. But, what does it really mean and why should we embrace it?
Open Finance is the ability to access and act on financial data to build personalized experiences, increase the pace of innovation, and drive industry collaboration. In essence, we’re talking about access to data related to loans, consumer credit, investments, and pensions. Open Finance also enables the possibility of wider integration of financial data with non-financial industries, such as healthcare and government.
Here are 5 reasons why financial institutions, fintechs, other organizations, and consumers should love Open Finance.
One of the key tenets of Open Finance is consumer-permissioned data sharing. Consumers should have the ability to choose who has access to their financial data. And, open finance APIs make it safer to share data with tokenized connections, removing the need for consumers to share their login IDs and passwords.
Open Finance gives companies greater access to consumer financial data, enabling them to innovate and create more personalized products and services to meet customer needs. It means that companies, financial and otherwise, can build and offer consumers and businesses digital products that help them understand and manage their financial lives better.
With the unique access that Open Finance gives into the financial lives of consumers, financial institutions can create tailored products and services that were built FOR underbanked groups by someone who understands them. It also enables greater insights beyond a credit score to make decisions on loans, mortgages, and credit cards — ensuring those who are unbanked or underbanked can get access to financial services when they may otherwise have been denied.
As we already shared, open finance APIs eliminate the need for consumers to share login credentials. Greater insights into the financial lives of consumers also means it’s easier to spot anomalies and potential fraud, reducing risk for both the organization and customer.
Better visibility into their financial data allows consumers to make more informed financial decisions and enables financial providers to make better lending decisions. As a result, Open Finance is significantly positive for the economy in the form of healthier lending, decreased default rates, and smarter financial decisions.
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