Open Banking has been widely discussed since 2019, but the topic has made headlines and drawn growing interest in recent months with Open Finance, an evolution of Open Banking.
Open Banking is the exchange of information between different financial institutions, giving users the freedom to choose which institutions they share their data with. This has allowed bank customers to use their data in third-party apps, such as investment platforms and fintechs.
Open Finance, the evolution of Open Banking, opens up and shares this information with many other platforms, such as retail chains, brokerages and technology companies, in other words, companies outside the financial sector.
So why is Open Finance a trend?
Consider this scenario: a customer opened a bank account a few days ago and needs extra credit on their card to buy a plane ticket or a new phone.
In the past, without Open Finance, this customer would have had to use the credit card for a certain period so the bank could validate and understand their spending and payment habits before releasing enough additional credit to buy the ticket.
With Open Finance, this information is gathered from other sources, making the process far less bureaucratic and much faster.
The idea behind it all is to create a unified banking data system that improves financial offerings for customers and directly increases banking competition in Brazil. And the benefits of Open Finance are not limited to customers' relationships with banks; they also extend to relationships with companies in other industries.
Sharing information through a data mesh is essential for this system to work correctly and securely, and it is indispensable for a full financial revolution in the coming years, according to bodies such as Febraban and the Central Bank of Brazil.
The benefits of Open Finance:
In the coming years, Open Finance could become an excellent source of information about people. It is directly tied to personalization, the idea of offering increasingly targeted and relevant products.
1 – Personalization:
Through information sharing, financial institutions will gain access to critical data to build a more accurate customer profile, all based on purchase history.
This will enable a financial institution to offer personalized investments that match each customer's characteristics by identifying their investor profile.
2 – Financial terms:
With financial information shared across different sources, companies will be able to offer better credit terms, and even personalized ones, based on each customer's level of creditworthiness.
The reverse is also true, since customers can choose the best credit line for them.
3 – Security:
Of course, to provide all this information, bank customers must give their consent, and they can choose which banks to share information with and which information to share.
In addition, Central Bank rules guarantee that customers have the right to revoke previously granted access, meaning everything happens with customers' direct consent.
Information:
This information mesh and all the connectivity between banks and organizations run on APIs (Application Programming Interfaces), so any company that wishes to can adopt these interfaces and take part.
However, APIs also require companies to have strong data governance to protect both the data and the information-exchange network itself. If that governance is missing or poorly executed, it can lead to data and information leaks for the banks or companies involved.
This is exactly where Digiage can help your company. We specialize in Data and APIs and are committed to delivering top technical quality and best-in-class API security. We have strategic partnerships with the leading API companies, including WSO2, DataDog, Azure and AWS.
Digiage also offers data solutions that let companies deliver data to every area of the business without any breach or violation of the LGPD (Brazil's data protection law), thanks to our Data Mesh approach combined with strategic partners such as Starburst, Atalation and Databricks.