Genesis of a Revolution

Open Finance

Publication
October 08, 2024

In the last few decades, the world of finance has navigated waves of disruption—be it online banking, the rise of FinTechs, or the introduction of open banking which allowed third parties to access once-guarded bank data. Now, we are entering the next paradigm of disruption. The age of open finance is here, and it is set to rewrite the rules of the financial services sector.

Open Finance

Genesis of a Revolution

Key findings

For the payment industry, we envision a future where open finance creates a universally instant economy. Here, real-time transactions will become the norm and advanced APIs will make this possible.

In the banking industry, data monetisation will become a significant revenue stream for financial institutions that hold customer data and, with client consent, provide it to third parties. Banks, as the primary financial institutions for many clients across Europe, are particularly well-positioned to benefit from this trend due to their extensive access to customer data.

In the AWM industry, data sharing through open finance will allow industry players to provide clients with an overall view of their investments, even if these are with different advisors and include products from various asset managers. These one-stop shops will offer real-time, optimised asset allocation advice and the best products suited to their allocations. This trend will enhance transparency and comparability within the industry at an unprecedented scale, driving further consolidation and leading to the accelerated extinction of those asset managers that will be unable to adapt and provide a distinctive value proposition. We expect the extinction rate to double compared to previous trends.

In the insurance industry, open finance will enable insurers to expand their footprint beyond traditional markets by partnering with FinTechs, insurtechs and other innovative players. These partnerships will allow insurers to easily integrate their products with the non-insurance offerings of their business partners, providing a broader and seamless customer experience for their clients.

The evolution of open banking, open finance and open data

Source: PwC Global AWM & ESG Research Centre

Standardised APIs will drive the implementation of open finance

Source: PwC Global AWM & ESG Research Centre

As open finance evolves, regulatory frameworks will continue to adapt to ensure data security, privacy, and interoperability between different financial services. We expect global efforts to standardise data formats and Application Programming Interface (APIs) to gain momentum.
This harmonisation will reduce friction in cross-border transactions and enhance the global financial ecosystem’s overall user experience. With standardised APIs and data formats, new entrants can more easily connect with existing financial networks and offer their services to a broader audience. This openness will foster competition, leading to more innovative financial products and services.

Such standardisation is crucial for achieving seamless interoperability, making it easier for various financial institutions—such as payment providers, banks, insurers, and wealth managers—to integrate and collaborate with third-party providers (TPPs).

Our recommendations

Open finance will herald a revolution so profound that industry players will be compelled to reshape their business models. We are truly at the genesis of a revolution, and open finance will unlock significant opportunities for innovation, enhanced customer experiences and competitive advantages. For this reason, we outline some key considerations that will position the European financial sector to navigate the evolving landscape:

As open finance becomes increasingly entrenched, financial institutions need to be deliberate about their strategy of adoption. Whether they pursue the role of participants or creators of B2C or B2B platforms—or integrate with TPPs to offer their services—the ideal strategy is to match the strategy to the institution’s specific needs and market context.

To guard against the risk of data misuse in an era where data flows more freely, with client permission of course, financial institutions and TPPs must prioritise both data security and ethical data use. We emphasise the burden of care that data receivers must uphold in data usage and handling. We also urge financial institutions to go beyond mere regulatory compliance to build comprehensive data protection strategies.

As customer data becomes more accessible, financial institutions can more easily offer specialised services within and beyond their respective industries. Given this reality, it is crucial for financial institutions to anticipate the rise of all-in-one service providers and develop strategies to address this shift.

Although open finance remains a growing trend, many solutions remain confined to national markets. However, if open banking is any indicator of how widespread open finance will soon be, then it is important for financial institutions to tap into the global potential of open finance now. It is therefore essential to begin the open finance transition now, to fully leverage cross-border opportunities in the future.

With the advent of open finance, there is the potential of incumbent financial institutions being relegated to mere product providers while large data aggregators usurp established customer relationships. To get ahead of this, financial institutions should leverage the opportunities created by new regulations and strengthen their connections with customers by thoughtfully offering personalised, high-value solutions.

Open Finance

Genesis of a Revolution

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Contact us

Björn Ebert

Financial Services Leader, PwC Luxembourg

Tel: +325 621 332 256

Dariush Yazdani

Partner, Global AWM Market Research Centre Leader, PwC Luxembourg

Tel: +352 49 48 48 2191

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