The Untapped Potential of Open Financial Data


By Rolands Mesters, CEO and co-founder of Nordigen

The potential value that could be created by open data for finance is enormous. Not only will economies that adopt open data ecosystems see GDP growth of up to 5% by 2030, but all participants in such an ecosystem will reap the benefits. In Europe, 17% of this new value will be captured by individual participants through improved products and increased access to financial services, 45% of the value will be captured by financial institutions through increased operational efficiency and better division of labour, and 37% of the value will be captured by SMEs through time savings and improved product offerings. SMEs happen to make up 99% of businesses in Europe, which means open financial data could completely transform the way the European business marketplace looks today.

What is Open Banking?

Anyone who now has a bank account, payment card, loans, online purchases or investment products leaves behind a trail of information. This information creates a detailed portrait of that person and what their life looks like from an economic perspective.

Currently, this information is disconnected and siled between the different platforms and services where it is generated or processed. Although there is some connectivity, for example, between your online spending and your banking services, financial information remains in a very primitive state when it comes to connection and use.

Technology is only now getting to a point where all of the data points that make up a person’s financial picture can be collected and analyzed. We have within our reach the means to collect and mobilize the financial footprint of the whole world. This new capability holds enormous potential to add value to the global economy and empower millions of previously overlooked people as true citizens of the financial world.

Current value is capped at only 10%

Despite its enormous potential, the value of open financial data today is capped at just 10% of its potential. But what exactly prevents stranding from releasing the rest of this value?

First, access to data comes at a price. Although access to financial data is free under PSD2, ultimately it is not at all for the end customer. Consequently, far fewer developers and companies are able to create new fintech services that compete with large retail banks, and the benefits of access to financial data cannot be maximized. The price barrier limits innovation. Keeping data costs close to zero is key to unlocking many more use cases.

Second, the data sharing mechanism has not yet been standardized. Although PSD2 stipulates that highly standardized APIs be used for payment data, data privacy regulations restrict access to other forms of financial data. Therefore, only a low to moderate level of economic value is accessible with the current data sharing mechanism. Since APIs are the most secure way to access financial data, their standardization is the way forward to exploit their full potential.

Third, there is a limit to shared data types. PSD2 is limited to only 4 data fields. The limited type of data shared also limits what can be created and how the data is used. One solution is that banks could share even more data. Alternatively, these 4 data fields could be used more efficiently – having premium value-added data insight services can help maximize the value of what is currently available in terms of financial data.

What can the future look like?

In the same way that 10 years ago we could not have imagined that the majority of what we watch on television would be streamed online through platforms like Netflix, we cannot know for sure what the future holds for open financial data. What is it’s clear that accessing new financial services will be as “normal” as logging on to your favorite social media platforms and receiving car insurance or a mortgage will be as easy as signing up on any which online platform, with the need to provide only a few pieces of personal information.

Moreover, the future will involve more financial connectivity. We will be able to link our bank accounts to an infinite number of applications and services with the possibility of leaving transactions on autopilot. the self-funding concept was discussed in 2019 by A16Z. With auto-investments and auto-savings already in play at this point, it’s easy to imagine a future of fully automated income integrations for taxes, automated detection of unusual and fraudulent transactions, automated switching between subscription, instant cash back on purchases and Suite providers.

At the macro level, open banking will lead to stock market efficiency. Information that was once kept in silos will be made available to hedge funds. They will be able to buy aggregate banking data from apps, with the user’s consent. Companies like Yodlee, Second Measure and Earnest Research have sold aggregated data to US-based hedge funds for years, but this is not yet the case in Europe, due to low open banking adoption. . Open financial data has enormous untapped potential and it’s time to let it sink in.

About Rolands

Rolands Mesters is the CEO and co-founder of Nordic, the only freemium open banking data platform in Europe. Rolands is a sales and growth hacker with a passion for fintech and alternative lending. Nordigen started as a data analytics company that creates solutions to categorize and analyze bank account data. In December 2020, the company launched the first free open bank account data API in Europe. Rolands has been featured in the Forbes Latvia 30 Under 30 list as well as TechCrunch, Sifted and the Financial Times. Rolands regularly shares fintech news and analysis on open banking at leading international fintech events, and is considered one of the foremost open banking experts in the world.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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