Financial wellness, financial inclusion, women’s finance are hot topics in fintech these days. At Holland Fintech, we believe this is proof of a greater tendency to humanize finance.
Interestingly, the humanization of finance is driven by new (data-driven) technologies (IoT, AI, and cloud) and the ever-increasing digitization of our society and economy. On the one hand, people expect transparent, easy-to-use and highly personalized digital solutions that appeal to their emotions and help them in life decisions. On the other hand, they also get lost in translation due to the high pace of technological and digital changes.
Supported by regulations (PSD2, GDPR), Open Banking has laid the foundations for the financial industry to slowly but surely open up to new players who use these technologies to put the needs of end users at the center of their models. economics, value propositions and interactions with customers. However, to allow all people to benefit from personalized financial services throughout their life, an openness beyond the framework of PSD2 is required. Therefore, Open Finance is the next logical step.
Put people behind the customer first to create new value
Humanization can be defined as the process of making something less unpleasant and more appropriate for people (Cambridge Dictionary). Something the financial industry has lost sight of over the years due to low levels of innovation, product-centric strategies, the challenges of repairing legacy systems, and increased regulatory pressure.
As a result, most fintech players have focused on putting the customer first and improving their user experience or helping financial service providers automate complex processes and bring much needed innovation and efficiency.
However, people still find it difficult to keep track of their financial situation and monitor the impact of their (non) financial decisions on their situation, due to the complex nature of financial products in general, the increased fragmentation of the financial sector and difficulties in accessing their data.
And although Open Banking has improved transparency, contributed to better knowledge of customer accounts and simplified payment processes, more is needed.
Access to financial data beyond PSD2 is necessary to help people understand if they are on the right track, safe from financial traps, and able to live their lives in the best possible way. This is what finance should strive for: not only putting customers first, but also the humans behind those customers with all their emotions, ambitions and dreams. And it resonates, as we see more and more fintech companies directing their resources to develop human-centric value propositions around the promise of Open Finance.
The promise of Open Finance: not without challenges
While Open Finance comes with great promise, there are some potential downsides that need to be considered. As mentioned above, to understand the financial needs of the human behind the customer, opening up a wider range of financial data is essential. With Open Finance, TPPs (third-party providers) have access to other sources of data, such as savings, insurance, investments and pensions, enabling them to solve this central problem and provide digital financial solutions including people really need it.
However, to unlock this data in the required digital quality and format, the slow pace of digital transformation and the lack of interoperability (API) within the financial industry remain huge challenges. PSD2’s regulatory approach created urgency, but also demonstrated that without a business incentive, banks are content with “good enough” APIs instead of providing the high-quality APIs required. As a result, APIs are often seen as unreliable, undermining the full value potential of Open Banking.
The implementation of poorly functioning APIs also impacts user adoption and conversion rates due to potential disruptions in financial services offered to the end user. A recent study by Monotype & CITE Research, based on a sample of 1000 respondents, indicated that 34% of consumers would refrain from doing business with a financial organization that offers a bad digital experience. Many industry initiatives to standardize API requirements have proven to be very complex and have yet to make a significant difference.
This problem will grow exponentially in a context of Open Finance, as other financial institutions, some even with lower levels of digitization, will have to open up and transform. So, drawing some lessons learned, regulators might need to consider how to take steps to provide better incentives to financial institutions in developing high quality APIs without barriers. An interesting step to remove these obstacles is the recently published report on the SEPA API Access Scheme by the Euro Retail Payments Group working group.
Finance should be a matter of the heart
Essentially, finance is very personal, often illogical, and quite emotional for people. However, most of them consider that the financial services and products offered are rational, process-oriented and complex to manage in a transparent, understandable and proactive manner.
This is not surprising as the financial sector can be characterized as very complex and regulated to ensure that all actors are accountable and take responsibility for delivering sustainable, safe and secure products and services to people. And rightly so.
However, with Open Finance, the industry has a great opportunity to make finance not just about managing risk or monitoring a process, but humanizing it and giving it back its heart. Regulators and industry should keep this in mind and share the responsibility of removing barriers, providing the right incentives, and spurring collaboration across the industry.
Only in this way can new value be created by meeting currently unmet needs with personalized financial proposals aimed at including, empowering and putting people in control of their finances to support their life goals. And let’s be honest, we may wonder if Open Banking has delivered on all of its promises, but by opening up to fintech, the payments landscape has changed and payments have become fun again! Now who would have thought that 10 years ago?
About Esther Groen
About Holland FinTech