OPEN BANKING


Payments Open banking has provided significant hope for financial inclusion, and it starts with payments. Payments serve as a gateway to other financial services like savings, credit and insurance. Transaction accounts are essential to retail


payment services. Fintechs present opportunities and challenges when enhancing the access and usage of transaction accounts and payment products, and making them accessible through lower-market entry barriers. However, this poses a level of operational, cyber, data protection, digital exclusion and market concentration risk. If these risks are not managed well, this could impact the benefits of financial inclusion. Hence, it requires effective regulation and a framework for supervision. Customer identity is the most significant barrier to financial inclusion, and over 1.1 billion people lack official identification.


Financial inclusion Financial inclusion is more than making financial services accessible to the unbanked. It’s the identity of people and the means to establish new accounts. One cannot have financial inclusion without access to digital identity. There are regional initiatives for national IDs to bring invisible people into the mainstream. India created history with the introduction


of a unique identification scheme in the form of the Aadhaar Card. Aadhaar is a proof of identity that stores biometric details such as fingerprints and iris scans, as well as personal information, including name, gender, age, address and contact details. It works in a similar way to a social security number in the US. The card has been a game changer for financial inclusion and governance. And a case study for top business schools globally.


Open banking Fintechs and financial institutions can alleviate the pain points of low-income, underserved people with volatile incomes. Open banking may enable products that can help low-income customers save, and create financial support for uninterrupted income and improve resilience to financial shocks. Meerkat in South Africa is an example: the saving and debt management solution is helping people to build saving habits, and assisting in their debt management by negotiating with creditors.


Underserved communities in emerging markets


pay a poverty premium for essential services like phone, gas, broadband and electricity. Open banking products could provide better tariffs and deals, analysing spending patterns, and negotiating rates with service providers like Trim in the US. This would encourage healthy financial behaviours; for example, personal finance management apps can support consumers by providing insights based on transaction data.


Access to credit Open banking products can enable accessible credit to those using alternative financial data. An example is Mojo Mortgages, which assesses affordability by combining transaction data, while other services such as Canopy use rent payments to improve credit scores. With alternate data and education for customers, overdrafts and pricey credit products could be replaced by low-interest or interest-free loans based on credit score and spending habits. Government, financial services and fintechs


are working in partnership to address financial inclusion. G20 GPFI (Global Partnership for Financial Inclusion) is focused on building these partnerships and support systems.


Open finance – the way forward So far, we’ve discussed the changes open banking could bring – but how would it actually work? There are challenges and issues which come with open banking adoption. European regulation requires access to limited data, namely payment accounts. This can offer a slice of data to third parties to gain insight and provide better services. Open banking is paving the way for future


innovation, and it has proven that data can be shared. Although it has complexities and


“New entrants bring innovation into the banking and payments ecosystem to enhance customer value propositions, pushing beyond financial value into social and ethical finance and financial inclusion”


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