Open Finance-enabled data sharing has the potential to “transform” the nature of competition in financial services markets, according to the Financial Conduct Authority (FCA).

At the Tax Incentivised Savings Association's (TISA) conference yesterday, Sheldon Mills, the FCA’s director of competition, spoke of the potential for the data-sharing revolution started by Open Banking to extend to other areas of financial and consumer services.

Open Finance is a term used to denote consumers agreeing to share their data with third party providers to access a range of financial services and products via connected apps and digital channels.

Mills said that concepts like Digital ID and data portability have: “the potential to improve the way consumers and SMEs [small and medium-sized enterprises] manage their finances, to improve the way firms interact with each other and with their customers, and to transform the face of competition in financial services markets.”

He said that current thinking around Open Finance technology represented “just the tip of the iceberg” and that the applications for consumer-data sharing could “substantively change” the nature of competition.

Mills explained that while it was not possible to predict the future of financial services, the FCA was currently focussed on key themes in the development of Open Finance, including the emergence of Big Data, personalised pricing and trust-less Markets.

"These are all factors which, handled incorrectly, could pose significant harm to markets, consumers and enhancing competition in the interest of consumers," he said.

However, Mills explained that if these can be developed within the right framework, including a collaborative approach across sectors, these trends could provide significant benefits to financial services and other industries.

Mills said that the regulator’s role needed to balance to consumer benefits of Open Finance with the potential risks it opens up for data privacy and competition in the market.

In its simplest form, Open Finance could enable an individual to open up a single mobile app to view all of their financial data, including loans, transactions, savings, investments and other services such as advice.

Mills said the concept could also extend the “role of transparency in data usage, storage, and portability which could unlock benefits for users and providers”.

While direct access to personalised pricing and advice via Open Finance platforms could result in major improvements in financial inclusion for those who are currently marginalised, SMEs would also stand to benefit from improved integration of payment, accounting and lending platforms for internal management, leading to greater cash flow control.

Mills said that Open Banking provided a successful, if limited, preliminary study for the implementation of Open Finance services in the future and underlined that there would be additional challenges for extending data sharing across a much wider pool of customers and a broader range of financial services.

The need for consistency amongst all players in the financial ecosystem is one of the key lessons the FCA has learned from Open Banking.

“From a regulatory perspective, consistency is crucial to the development of Open Finance,” he said, explaining that consent management - ensuring that individuals are aware of how their data is being used and what they have granted permission for - digital ID verification such as biometrics, and cross-sectoral collaboration, would be key to the success of Open Finance.

“This is not just a challenge for UK financial services," he concluded. "Co-ordination is essential, not just from industry’s perspective, but across regulators, government bodies, and internationally - an idea this big cannot be siloed in its development.”

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