Data is a powerful enabler of innovation: It helps financial service providers (FSPs) to better understand and serve consumers, as well as improve how they manage their own risks and business models. Data can also bestow market power. Key market players, such as large banks can wield the extensive client data that they hold to their competitive advantage, making it difficult for start-up innovators to get a foothold in the market. 

The open movement 

In response to these power imbalances, more and more countries have started to implement, or to consider implementing, an open finance regime. Open finance can be defined as the sharing of consumer data between FSPs and/or third-party providers on the basis of consumer consent.

There are multiple ways to approach the implementation of open finance: from a laissez-faire approach based only on industry initiatives (USA) to a regime where participation is voluntary but the authorities nevertheless play a key orchestrating role (Singapore), to a regime where participation is mandated for certain players, but they are actively consulted in the process (Brazil) or a mandatory framework implemented independently by each country (the EU), to a system where players are only consulted on the details of the framework once they have been mandated to participate (the UK). 

A two-step decision framework 

This report proposes a framework to navigate the decision of implementing open finance. Countries interested in the potential benefits of open finance face two sequential decisions.  

Step 1: Will it make sense? 

Countries need to assess whether open finance is an option at all in the local context. This requires them to answer “yes”, “potentially, yes” or “maybe” to all of the following questions: 

• Are the benefits of open finance aligned to the policy and regulatory imperatives of the country?
• Are there sufficient policy, regulatory and institutional mechanisms to implement an open finance regime or are there sufficient tools to implement the necessary mechanisms if they are not yet in place? 
• Could there be a perceived net benefit for data holders to participate in open finance? 
• Is there a market for the effective use of shared data by innovators? 
• Are consumers likely to see benefits and participate in open data markets? 

Step 2: What should it look like? 

If the answer is that open finance could be an option, then the next question is what model of open finance would best serve the specific country’s purposes and, out of that, what is needed to design and implement the system for maximum success. Here, again, five key considerations come into play: 

• Which type of regime and implementation process is best to adopt?  
• How should the regime be regulated and governed? 
• Which entities will be required and allowed to participate?  
• How should data sharing be approached? 
• Which entities should bear the implementation costs?  \

The report includes a detailed description of each step and sub-step in the framework with illustrative examples of how different countries have approach open finance. 

If you have any questions about the decision–making framework or would like to discuss an aspect of open finance, please contact Jeremy Gray.