CFIT’s Open Finance coalition: Driving innovation by creating a financially inclusive future for all UK consumers and businesses
Those following our ‘Open Finance in Focus’ series know we’ve been speaking with our coalition members to get a peek into their research and insights on how datasets can improve financial outcomes for consumers and UK businesses.
Having shared our partners’ views on what UK businesses (SMEs) can expect, we were delighted to sit down with Nicola Anderson of Fintech Scotland, Stuart Harrison of FinTech West, James Varga, founder of Direct ID and Tom Scott of cxpartners to hear how consumers and businesses can benefit from Open Finance and the obstacles that need to be overcome. They offer a breadth of perspectives to ensure that the coalition’s work is informed by the experience of end-users and FS providers across the UK’s constituent regions and nations.
Each of these members also brings a range of valuable insights and relevant experience: Nicola and James, for instance, were both directly involved in the Kalifa Review (which made the recommendation to form CFIT) and see the delivery of Open Finance as a key avenue to solving long-standing industry problems identified in the report. James has also been involved, for over a decade, in campaigning for Open Banking and leveraging it to enable more inclusive consumer credit scoring. Similarly, Tom has drawn on cxpartners’ learnings from designing technology for Open Banking and on his team’s conversations with their customers around access to the best financial solutions.
Advancing dataset sharing to improve financial outcomes for consumers and businesses
“Since the summer, we’ve been bringing the industry together around the opportunities offered by Open Finance,” Nicola said, adding: “CFIT has an opportunity to work with existing regional clusters, engaging in the established relationships these clusters have across the industry, to advance fintech innovation.”
As we also heard from their peers in the SME group, their work began with identifying problems consumers face, with an initial focus on access to credit, and the roadblocks to consumers accessing financial help when it’s needed most. According to Stuart, the need for Open Finance “has been urgent for a while now.”
The core problem is a longstanding one, i.e., the limited access financial services providers have to data, which, in turn, impacts the outcomes for consumers – for example, their ability to borrow from their banks, whether in the form of mortgages, credit cards or other consumer credit products. Credit decisions are typically made based only on the information credit rating agencies can collect and transaction data from banks.
Drawing on his experience, James is working with other coalition partners to identify and understand consumer pain-points when seeking to access credit, and what changes could be made to make these issues more manageable – including which additional datasets could be unlocked to help consumers choose better credit options, and allow lenders to manage risk more effectively.
An Open Data authentication flow and consent hub
Consent and the associated customer authentication sit at the heart of permissioned data sharing. When the volume of data sharing increases under Open Finance, end-users need a better solution to authenticate across multiple data providers and to effectively manage their permissions. The UK already has a fit-for-purpose, fully tested consent model built for Open Banking, which, in our view, should form the basis for Open Finance. But what is needed additionally is an authentication model that works in an Open Finance environment when data sets from multiple sources are required to deliver a single value proposition. Tackling this more complex authentication process will be at the heart of the next steps towards Open Finance.
Stuart and other partners have been looking at ways to approach this. “In the model we’re exploring,” Stuart explains, “consumers will just need to go to one place to manage the authentication process and live data permissions, simplifying the process for everyone.” This new authentication flow and consent hub will allow industry to continue relying on the Open Banking consent model and principles, but make it applicable to the ‘1:many’ model of Open Finance. It is also adaptable to other Open Data use cases, and was built with data minimisation and customer centricity principles.
In a similar vein, Nicola has been looking at potential efficiencies within the infrastructure requirements around data-sharing. She explains: “Our coalition partners see real opportunity to explore how the infrastructure for Open Banking and the infrastructure being developed for services such as the pensions dashboard, could be redeployed into other financial products.”
That reduction in friction has enormous potential consumer benefits. Nicola gives the example of those who have been bereaved settling the estate of a loved one, whose financial footprint might touch 20+ different financial service providers. “Rather than notifying each of these separately,” she says, “with Open Finance applications, there could be an easier authorisation process that enables all financial institutions to be alerted and have access to the relevant information, simplifying what is a hugely difficult time.”
Tom believes that through Open Finance, there’s an opportunity to help organisations improve on the solutions they deliver to their customers, but also recognises the challenges from a customer’s point of view.
“There could be hundreds of data sources,” he said, “but there’s also a need to build understanding among consumers to close the gap between (a) individuals sharing their data and (b) consumers’ understanding of how the data-consent model works.”
Open Finance shaping the future of financial services – for consumers, fintechs and beyond
The coalition is not just looking at theoretical applications and long-term benefits. CFIT is working with Citizens Advice on a proof of concept, showing how Open Finance would enable their customers to access affordability assessments and advisors to obtain a comprehensive overview of the customer’s financial information via a single dashboard. This will help people get on top of their finances and streamline Citizens Advice’s processes at a time when cost-of-living pressures are increasing demand for their services.
According to Tom from cxpartners, ‘financial services can be complicated, and sometimes consumers may not fully appreciate the complexities of different products and may require tailored financial advice.” “Commonly, it’s financial or mortgage advice but it could also be debt management,” he said. Whatever their needs, gaining a full picture of people’s financial position is foundational to effective advice; but it can be a laborious, manual process.
“A lot of people are underserved because they can’t afford advice. Take the wealth sector, for instance, which has thousands of shares and funds available to choose from, of which many investors will know little or nothing about. Open Finance has the potential to close the ‘Advice Gap’, helping people navigate complex investing options who are unable to afford full financial advice.”
James tells us that this kind of tangible impact of Open Finance for consumers is a critical part of the coalition’s work. “Educating consumers about the benefits of these solutions is important, but what’s more important is providing a positive experience where consumers can see and enjoy the benefits of Open Finance.” Stuart echoes this sentiment. “We want to provide consumers with better, more effective choices, whether in credit or any other form of financial service, and to offer better, more fitting solutions for their specific needs.”
But banks, fintechs and other financial service providers looking to offer innovative solutions to consumers will benefit just as much. Stuart expects a “surge” in fintechs coming forward to solve Open Finance, once the CFIT coalition has “opened the door” for them. “Once we start really utilising Open Finance, it will create a whole range of opportunities for financial services and fintech businesses to offer new ways of working, new routes to market and new solutions for customers that they can’t do at the moment.”
James concurs, telling us that “CFIT’s primary goal is not to introduce Open Finance. That’s secondary. But it’s the single best way to ignite innovation from start-ups and businesses to solve specific problems in the industry.”
We are delivering on this and, later this year, will publish our Final Report building on the initial findings laid out in our Progress Update, and setting out a strategy for the UK to lead the way in delivering Open Finance.
To find out more about our Open Finance coalition, visit Open Finance – The Centre for Finance, Innovation and Technology (CFIT)