Open finance: competition and cooperation hold the key to success
Most of us need to make payments, manage assets, plan our pension and insure our worldly goods, but these are not necessarily tasks that we enjoy doing. We would prefer it if they were seamlessly embedded in our lives, giving us more time for other things. This is why integrated digital services are steadily gaining popularity. They allow us to handle our investments, payments and accounting via multiple providers within a single app. This is known as open finance.
The term may at first appear somewhat paradoxical to Swiss people, for whom discretion is traditionally paramount when it comes to personal finances. However, a study published recently by Mastercard shows that Swiss customers do in fact take an interest once the concept has been explained to them. Open finance thus has a great deal of potential to shape the way financial services are provided in future. Essentially, open finance permits financial service providers such as banks, insurers and fintechs, as well as non-financial service providers, to exchange information with each other using standardised interfaces. The focus here is on customers: they decide which data they want to share, for which purpose and with whom.
A peek into the engine room
A peek into the engine room reveals why everyone ultimately stands to benefit from open finance. Companies already use multibanking systems to keep track of all their banking and investment activity across several institutions. These are clearly a big plus for them, and private customers should be given the option to use them as well. The banks, for their part, can expand the range of products and services they offer thanks to open banking while also strengthening customer loyalty by enabling access to third-party providers. These providers in turn can tap into new customer segments that would otherwise be hard for them to reach.
The Swiss financial centre is ready for this and has already taken the first important steps, with further developments in the pipeline. Only time will tell what is possible.
Setting the right course from a technical standpoint
One thing that is vital is that market participants should compete with each other via products and services and not through technical specifications. Switzerland needs to set the right course now to prevent this from happening across a broad front. It is essential to define, develop and operate the application programming interfaces (APIs) needed to exchange data securely between banks, customers and third-party providers. To avoid a confusing mass of different specifications and speed up the transition, these APIs must be standardised. This will ensure that as many market participants as possible can communicate and share data with each other as easily, efficiently and securely as possible.
Transparency regarding key players and roles
However, putting this into practice successfully also requires a shared understanding of the legal framework. The Swiss Bankers Association is coordinating efforts to clarify legal and regulatory issues and representing the entire industry’s interests vis-à-vis politicians and authorities. Our partner association Swiss Fintech Innovations (SFTI) is drawing up universal API standards together with other specialist and technical fundamentals of open finance. SFTI’s Common API working group is collating all recognised API specifications and security recommendations for specific areas of business. SFTI defines interface specifications either by itself or with the aid of other market-driven initiatives.
One good example is the OpenWealth Association, which has set itself the goal of defining, maintaining and operationalising open API standards for the global wealth management community. As ambitious as this may sound, Switzerland’s leading position in cross-border wealth management means that it is exactly the right approach for enabling innovation and securing the Swiss financial centre’s high standing over the long term.
To minimise friction with standards from the rest of Europe, the SBA recently joined the Berlin Group’s openFinance task force, which is instrumental in defining Europe-wide open finance specifications.
“Cooperative competition”: an efficient approach
All of these activities are founded on the conviction that “cooperative competition” between financial market players is the only way to add value to the ecosystem efficiently and sustainably. This means cooperation in terms of shared technology and regulations to allow competition in terms of innovative products and services.
With the market-driven open finance approach, Swiss financial institutions can determine their own role in open finance business models. Ultimately, however, customers’ needs will dictate the form and success of open finance. The banks will, at any rate, be ready to take these needs on board and offer their customers products and services that meet them.
The SBA will continue to work with its partners to raise awareness of the opportunities afforded by open finance and to enable the services it entails. This is the only way to make sure that everyone – customers, banks and the financial sector as a whole – can benefit from it.