North America makes steps towards a new era of open data, says Finavator CEO Michelle Beyo.

Amazon, the biggest online company of all time, has transformed the way we shop, entertain ourselves, and live.

Now, according to a leading financial growth expert, open data is set to do the same for how we manage our money.

Michelle Beyo is good at predicting the next big thing in financial services. As CEO and founder of award-winning future of finance consultancy Finavator, her insights have helped companies across North America thrive in this fast-moving industry.

According to her, open data isn’t just a pivotal trend, but a tech-driven juggernaut that’s about to click into top gear.

“Open data is a journey towards the empowerment of consumers and SMEs (small-to-medium enterprises),” states Michelle, also a TEDx speaker. “It will start with open banking, followed by open finance, and allow us to share data (with consent) through secure APIs. The result? New innovative solutions that also help reduce consumer costs”.

In a recent talk at the leading Fintech conference Money 20/20, Michelle put this into perspective by moderating a panel stating how it has the potential to drive up to 5% of a country’s GDP when the right path is taken.  

The potential GDP impact of open data

Source: McKinsey

Open finance (and open banking) stand at the head of this global trend, holding the keys to a new era of inclusive finance and personalized banking services – and 2024 is the year when we may start to see it take greater hold across multiple industries.

So, what should we know about open data and how exactly is it set to redefine the future of the financial industry in North America?

We spoke with Michelle to explore this seismic shift in more detail, as well as ask why the US and Canada are about to see much more momentum.

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What is open banking, open finance and open data?

To fully understand this concept, we should zoom out and look at the open data model as a whole, which means dividing it into three sub-categories: open banking, open finance, and open data.

Open banking is a subset of open finance that focuses on transaction data sharing for banking products, including savings, investment, and current bank accounts.

Open finance simply takes this concept and applies it to all financial products beyond banking to encompass a wider range of financial services and products. This can include investments, pension funds, insurance, and broader financial products, not just those offered by banks.

A lender, for example, could carry out more accurate credit assessments based on non-credit factors, like your employment history or even your small business’s social media following, to work out how likely you are to pay back a loan or credit card.

Open data, finally, is the broader practice of sharing consumer data with organizations in return for personalized and cost-effective products.

Let’s say you want to buy a car but don’t know what to get. A data-sharing model could provide recommendations based on your driving history, location, and financial status.

How can open data in the finance industry change our lives? 3 key benefits

Rapid advances in payment technology and a deep consumer desire for personalized services have pushed open finance to the forefront of data-driven innovation, especially since the pandemic.

Michelle Beyo believes this will transform how we handle our finances, which she summarizes in three key benefits that have already started to take shape around the world.

1. Ultra-customization

Recall the time when switching phone service providers meant losing your phone number?

Michelle draws a parallel to this in the banking world. She points out how switching banks today forces us to start anew, wiping our financial history clean with each move. This often leads to misinformed choices in banking products, as our new bank lacks the comprehensive data history to offer tailored solutions.

Open finance, she claims, will make this a thing of the past. We’ll be able to “port our financial identity” with us when we join a new bank, allowing them to offer us customized financial products, such as savings accounts and pensions.

“If you look at Australia, they embedded a legislated data right for all citizens across 5 industries starting with Open Banking in 2020, followed by a roadmap to open finance, open telecom, open energy with the final goal of open data, which has empowered both consumers and financial institutions. Banks can now offer tailored products based on customer data and treat them in a way that ensures long-term loyalty”.

Ultra customization like this opens up a win-win scenario, with customers benefiting from bespoke financial plans and optimal interest rates based on their datasets.

2. Enhanced security

“Open data means less data”.

This phrase from Michelle’s may not automatically spring to mind when we think of open access data, but it’s a likely outcome thanks to a new generation of Application Programming Interfaces (APIs) that’s making its mark in everything from virtual cards to ID verification.

“Let's think of a (current) bank holding seven records of me because I have seven different products with them”, she says.“With open banking, all of that is contained and verified via consent to share my data so that there can be fewer avenues for information leakages and heightened security against breaches.”

michelle beyo open data finance

Screen scraping, too; a method that has drawn heavy criticism from safety experts, would also fade out over time.

“The ported financial data will be supported by a secure and regulated banking API infrastructure, which eliminates the need for unsafe screen scraping”.

3. A holistic approach

The Amazon model is now universal thanks to its usability and convenience, and open finance data aggregation looks set to take banking down a similar route.

“The ‘Amazon customer experience’ in personal finance is going to give us this holistic view of our finances.” states the Finavator founder. “We’ll have the ability to get a dashboard view of all our banking, savings, and investments accounts, which will save us so much time and hassle. Just think how many hours we spend logging onto different platforms and trying to build a general view of our finances! Open finance lets us have all of these in one place.”

Michelle points out the example of the UK, which has made big strides in both open banking data security and accessibility.

“The UK started its roadmap in 2017 when they mandated their nine major banks (CMA9) to not only comply with but to help pay for the open banking ecosystem. This helped put consumers in the driving seat for open banking as all they had to do was give consent for it to port between entities.”

But perhaps a more important use case of how it’s set to change people’s lives is coming from Latin America.

Brazil decided to move toward open banking during the pandemic, after looking at Australia and Europe” says Michelle.

“The Bank of Brazil helped enable a mass wave of consumer empowerment by allowing direct access to financial technology startups, which allowed them to slash fees and provide open banking for the underbanked across the country. This has attracted huge capital investment from abroad and allowed fintechs to scale up billions of dollars in volume”

And the result for Brazilian citizens?

“It was a powerful move that opened the door for scores of innovation jobs and long-term competitive growth, not to mention the huge consumer banking savings”.

Why open data’s impact in finance is finally about to take off in North America

The USA and Canada are two of the 10 largest economies in the world, but open banking progress has been slower than expected.

Regulatory obstacles and a lack of spending mean North American consumers are yet to see the true benefits of open banking and beyond.

Financial account information is siloed, with investments, savings, and insurance policies all in different places. This makes financial planning difficult and increases the chances of security breaches.

Yet things are warming up.

A survey by leading API firm Axway found that 60% of Americans feel that open banking is positive, with 64% of them liking the thought of easily switching between financial services providers in this way.

Michelle Beyo sees this backed up by other signs progress across the continent, driven by advances in foreign markets

“There’s so much that we’re seeing in other markets that’s about to drive open banking in North America, like “pay by bank use cases taking off in the UK and now gaining interest due to reduced cost to consumers and merchants.”

Plaid, Flinx, and MX are three such entities signed up to the Open Finance Security Standard (OFDSS), a common framework for consumer data security that supports innovation among digital finance companies.

A summary of the OFDSS

Source: OFDSS

Even more encouragingly, initiatives like this are about to receive substantial federal support.

“The CFPB (Consumer Financial Protection Bureau) made an announcement in October 2022, which almost made me fall off my chair with excitement!” she jokes. “It was great to hear that they were moving towards open banking for 2024. They’ve got a mission, including a robust provisional 300-page document on the topic, that sets out the path to complete market growth. Having this government-led aspect changes the dynamic”.

What could this mean?

Well, it looks like a unified open data ecosystem is poised to emerge. One in which consumers can monitor and manage their finances in one place, increasing their security and fiscal health.

Michelle believes this transformative impact is just around the corner, and with the CFPB providing a clear rule making path.

“When you regulate it and you mandate it, like Australia has done, then you get a whole ecosystem running in the same direction with the same road and the same painted lines. And that's where things start to explode”.

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