Opening up finance: Hacking for good

By Chirine Ben Zaied, Head of Innovation, Finastra

Covid taught us all to get digital, and the financial services industry has been responding. We’ve seen the industry evolve rapidly and accelerate the pace of change in areas such as digital banking, payments and lending. Open Banking has been a crucial enabler of this change – with banks opening up their services through APIs and increasingly recognizing the value of an open platform-based approach that allows them to collaborate and innovate more quickly with partners.

Advances in technology are making the financial services industry more open and accessible to customers, fintechs and bigtechs than ever before. As we move towards the future of open finance, how can we harness this momentum and encourage people from all backgrounds and experience to come together to help redefine finance for good?

We’ve devised a hackathon focused on three key themes that are inclusive and open to all, and we’d like to encourage everyone to get involved. Our three areas of focus include: sustainable and inclusive finance; decentralized finance (DeFi); and embedded finance. In a world where consumers are open to accessing financial services through non-bank brands they can readily access and trust, we’re seeing a lot of traction and interest in these areas. Let’s explore each in turn.

1. Sustainable and inclusive finance – The need for governments, corporations and financial institutions to take action on environmental, social, and governance (ESG) issues has never been higher. The collaborative power of technology, talent and open ecosystems is essential in helping to financially empower every person on the planet.

Just looking at financial inclusion alone: there’s still a long way to go in tackling this issue, with the World Bank estimating that some 1.6 billion adults across the globe remain unbanked. Even in developed economies, large parts of the population are underbanked or marginalised in their ability to access financial services. The impact of inflation and the strain on public healthcare systems caused by the pandemic generally hits the poorest in society hardest. This effect is amplified when they don’t have access to bank accounts, the ability to make and receive electronic payments, to protect against loss through insurance or manage their financial future through savings and loans.

Sustainable finance is another key area of focus. Unless everyone is proactive in addressing environmental and sustainability challenges, the world as we know it is at risk. Initiatives in areas like the circular economy and green finance can make a real difference if we come together and create the right momentum behind them.

1. Decentralized Finance – The shift to a world of decentralized finance that uses technology to eliminate intermediaries – enabling anyone to access financial services anywhere, regardless of who or where they are – is firmly underway. The use of DeFi to record and verify financial transactions on the blockchain, is opening up a world of opportunities for individuals to interact directly and exchange value peer-to-peer. The growth of the gig economy, alongside DeFi, and the use of non-fungible tokens (NFTs) and cryptocurrencies, offers the potential to transform how people live, work and engage in financial services – giving them more choice, increased flexibility and more control over how they manage their lives.

In the commercial world, we’re already seeing the potential for NFTs to be used in areas like trade finance, invoice financing, real-estate and across capital markets – whereby assets are re-packaged as NFT tokens that can be traded by institutional investors. Token holders gain the legal entitlement to the asset or package of assets.

1. Embedded finance – Consumers increasingly expect finance to be delivered to them where and when they need it, embedded within their specific journey and tailored to their requirements. Customers that access financial services through banks’ proprietary channels today, will start to consume those same financial services (and more) through third-party interfaces that are more convenient and relevant to them, tomorrow.

Embedded finance, or ‘Banking as a Service’ (BaaS) is not about replicating the existing ‘bank to customer’ experience in a new channel; it’s about creating a relevant contextual ‘customer to brand’ experience that includes financial services. The opportunities for innovation are huge.

Recent research conducted by Finastra – canvassing the opinions of 1,600 senior industry executives from banks, distributors (retailers and consumer brands) and enablers (big techs and fintechs) found that almost 85% of respondents are implementing or planning to implement Banking as a Service (BaaS) to support embedded finance over the next 12-18 months. And with commentators predicting that the total market opportunity for BaaS will exceed $7 trillion by the end of the decade, it’s not an area that can be ignored

There’s a lot of power in bringing a diverse set of people together with a common goal to

redefine finance for good and build an unbiased fintech future. You can sign up now for Hack to the Future which runs until April 10.