By Matthew Tyrrell, ANZ Commercial Director at Codat, the API enabling SMEs to share and sync financial data

By now we’re all aware of how Open Banking works, with financial institutions having the ability to open up data for regulated providers to access, use and share. The result? Its advocates say the result is more control, and the ability to unlock new financial capabilities, with a frictionless user experience, for consumers. For others, Open Banking is a glorified payment rail with some nice-to-have new features.

However, when we look at the bigger picture, the way that data is influencing financial decision making, Open Banking is just the beginning of something much larger; the introduction of Open Data and Open Finance is going to change the game.

Whilst the Open Banking framework’s Consumer Data Right is a great first step in Australia, this is only the beginning of how we use financial data, for consumers and businesses alike.

Since the beginning of the pandemic, we have seen a significant shift in the way we interact with financial services, particularly as in-person interactions came to a standstill. This made apparent the overlooked importance of the sharing of data in an efficient way, which initiated industry-wide changes, from digital signatures to API-driven data analysis. The fastest movers saw this as an opportunity to embrace the new digitally-focused world, leverage their data, and unlock a new era of finance- something many fintech companies were already doing.

There are numerous ways in which Open Finance and Open Data can help financial service providers gain a more in-depth understanding of their customers’ financial health and their personal needs in order to help them flourish- extending beyond bank statements and standard credit scores.

However, it is important to understand how the two concepts, Open Data and Open Finance, how they stack up alongside Open Banking, as well as the benefits and opportunities that exist in this financial ecosystem.

What is Open Finance?
When we think of leveraging financial data, Open Banking is the smallest narrowest use case, Open Finance is an advancement of the former, tapping into new sources in new ways, and Open Data is broader, and wider encompassing again.

Think of Open Finance as a level above Open Banking, extending to a wider range of financial data. In the same way, Open Banking promises to give Australians more control over their financial data, Open Finance will change the way businesses will access different financial services, via the platforms and providers that power their everyday operations. A merchant’s Shopify sales for instance, or a designer’s PayPal account, or a cafe’s Square POS, can be leveraged to give finserv providers an accurate picture of a company’s financial standing- more than what is likely available via a standard credit score.

But it’s not just accessing financial services that will be easier to access. As Open Finance matures, it also has the benefit of making business operations more efficient by facilitating data flow between software systems. Essentially, it means less time rekeying information, updating and uploading financial data, and more time spent on activities that contribute to the business’s growth.

For example, the integration between a business’ payroll software and HR system, or between an inventory management platform and e-commerce platform can save a business many hours each month on admin. But arguably the most important data source stands to be accounting because it is the central cog in so many of a business’s financial processes.

What is Open Data?

Whilst Open Banking provides financial institutions the ability to tap into a consumer or businesses’ bank data, and Open Finance digs further into sources like investment, superannuation, and accounting data, Open Data goes a step further again. It’s broader than just finance and can give individuals the ability to leverage any personal data. One example could be to digitally share your drivers’ license or passport data to quickly prove your identity.

The ability to share this data securely and digitally introduces a new way to access a wide range of services. As a result, the potential to reduce identity fraud and scams is greatly reduced, with the addition of frictionless authentication processes that help to better integrate tech into the flow of daily life.

Essentially, Open Data presents a catalyst to increase competition across a wide range of industries and potentially allow businesses to negotiate better deals, save money and unlock tailored products and services that meet the organisation’s specific needs.And while it’s limited to bank accounts right now in Australia, energy, and telecoms will be the next focus for Open Data, with many other applications pegged for the future. Our ability to better utilise data will usher in new ways to share personal information securely between systems, creating simpler ways for individuals and businesses to access a variety of services- tailored to the individual.

Where does this leave the relationship with banks?

The rise of Open Banking, Finance, and Data will make banking professionals much more impactful in their roles, improving the experience and speed of accessing financial services. Where bank managers would spend hours chasing bank statements, excel sheets and BAS forms, the advent of digital onboarding means they can add more value to businesses, with more time to proactively recommend useful products and act as an advocate to help companies thrive. Instead of dealing with the once inevitable admin burden, at the click of the mouse, SMEs can simply authenticate themselves and connect a bank or institution to all of their data without having to download a single CSV file.

As a small business owner, the hours saved in locating, downloading, and formatting business data could be the hours that mean the difference between a winning product or a rushed shelf-sitter.

Could Open Finance drive competition in the market?

The short answer is, it’s probable. Product and service providers that leverage Open Finance could create the ability to tailor financial products to an individual business’ unique standing.

It’s not uncommon for finserv providers to offer better deals to customers with the highest credit scores, and tariffs for servicing more ‘risky’ clients. This approach almost always disadvantages younger businesses with immature credit scores or companies that operate with a lot of cash.

Open Finance can unlock new ways for providers to customise their offerings and bolster their own bottom lines, or customer loyalty. For example, a company that remits a high volume of invoices promptly may be eligible for lower interest rates on a loan. Or perhaps a company that can demonstrate regular payments machinery maintenance could access more affordable insurance on their equipment. Data is the key to unlocking these insights which benefit all parties.

Born out of the proliferation of data, and fast-tracked by the pandemic, the era of digital assets and identity is in full swing and there’s only potential to advance capabilities from here.

Over the coming years, it is expected that intersecting points between Open Data, Open Finance, and Open Banking, will become pivotal in the way that businesses interact with financial services and more. Knowing this, it is essential for financial institutions to recognise and invest in their capabilities to leverage data-driven opportunities if they intend to compete in the increasingly crowded B2B product and service industries.