Why Open Finance is changing the future of financial services
With Open Finance, consumers can unlock access to a future where financial services are both convenient and accessible.25 February 2021 • 4 min read
Recall the last time you applied for a loan. How long did it take for it to get approved?
On average, it takes several weeks for a personal loan to be fully processed by traditional financial institutions such as banks.
That is the current state of financial services across Southeast Asia. For non-time-sensitive loans, the long application and approval process could be bearable.
What if the loan was taken to fund an emergency surgery for a loved one? Could you patiently wait for weeks while their life hung in balance?
Despite banks being the main custodian of our financial assets, we dislike them. In a 2018 World Economic Forum survey of 30,000 millennials, only 28 per cent said they trusted banks to be fair and honest.
While we frequently get frustrated with their delays and lack of flexibility, have we wondered what causes this lack of efficiency?
Given their financial might, traditional financial institutions should have access to a wide range of resources to expedite current processes and deliver better products and services for their customers.
However, the bulk of these incumbent financial companies have legacy infrastructure built decades ago. Therefore, it is a small wonder why banks spend up to 75 per cent of their IT budget on maintenance.
The rapid pace of digital transformation has left these large financial institutions behind and they are paying the price for it.
Collaborate to win
The root cause of the current state of financial services can be traced back to the way such companies approach the exchange of data.
With the preconceived notion that their customer’s financial data represented a competitive advantage, traditional financial institutions chose to store them in silos.
Personal data such as transaction and income history were not shared with others, in fear that competitors could leverage it and lure customers away. However, this could not be further from the truth.
The lack of collaboration between financial companies brings about greater costs than benefits.
Without access to other sources of financial information, these companies are unable to obtain an accurate digital financial footprint of their users, creating a host of problems for both parties
For companies, they have to waste unnecessary resources searching the web for income and credit histories. This creates a stressful registration process where customers are required to furnish tonnes of documents to verify their identity and financial history.
This problem is further exacerbated within Southeast Asia. The region is home to an unbanked population of 290 million, making it impossible to ascertain their financial wellbeing by scouring through internal bank records.
Instead, the majority of their financial data resides in digital financial platforms such as P2P lending platforms and mobile payment providers. If these data are not shared with the banks, they would not even have the slightest chance of securing a loan.
As the majority of the unbanked consist of those in the lower-income groups, the lack of access to financial services only serves to widen the financial divide within Southeast Asia.
Why Open Finance is the solution
Amidst the gloomy state of financial services across the region today, Open Finance holds the key to a future where anyone, including the 290 million unbanked in the region, can access financial services.
With the consent of users, Open Finance enables financial platforms to securely exchange the financial data of their users with each other.
By making their data work for them, consumers can unlock access to a future where financial services are both convenient and accessible.
Leveraging exchanged financial data, registration forms for bank account openings or loan applications can be pre-filled and customers are no longer required to submit physical documents.
This translates in a seamless and stress-free signup process where loans and account openings could potentially be approved within minutes.
For financial companies, besides providing a better user experience that lowers customer churn, Open Finance unlocks a new group of eligible customers, with 290 million unbanked coming onboard to utilise digital financial services.
Crucially, Open Finance boosts the security of financial services.
By leveraging verified and secured data exchanged between platforms, companies can confidently and accurately identify their customers, reducing fraud. This also facilitates better credit scoring, lowering default rates.
How different financial platforms can benefit
With the opportunity to gather data from a wider range of financial platforms, personal finance platforms can better analyse the exchanged data and gain insights into the present financial situation of their users.
By having greater clarity of their cash flows, these platforms can offer more personalised budgeting and saving insights.
Likewise, lending platforms can leverage Open Finance to streamline customer verification through eKYC processes.
Besides obtaining a more accurate credit score, these platforms can also check the balances of their users’ account in real-time and set up recurring repayments, further lowering the lending risk and default rate.
Join the future of financial services
Open Finance has enabled digital financial companies to create personalised and convenient financial services that consumers love.
At Finantier, we build the infrastructure enabling that to happen - all through a single API.
Our APIs are developed with the best interests of developers in mind, allowing companies to easily embed our services onto their platform and launch within an afternoon.
Speak to us today if you are interested in joining a growing community of companies that have used Finantier to build the future of financial services that their customers love.