Open Banking vs Open Finance: what is it and what is the difference?

Open Banking vs Open Finance are two terms that have gained a lot of attention recently in the financial sector.

Both aim to use technology to improve the user experience and facilitate access to financial services.

However, they are not synonymous and there are important differences between them.

In this article, we will explore what Open Banking and Open Finance are and the key differences between them.

What is Open Banking?

Firstly, Open Banking is a concept that refers to the practice of allowing third parties to access a customer's banking data in a secure and controlled manner. This is possible thanks to APIs (Application Programming Interfaces), which allow different systems to communicate and exchange information securely.

In the context of Open Banking, this means that customers can authorize third parties, such as fintechs or other financial institutions, to access their banking information, such as balance, transactions and credit history, for example.

This can help improve the user experience by making it easier to compare different financial products and services and allowing companies to offer more personalized solutions.

Open Banking can be divided into two categories: regulated and unregulated.

Regulated Open Banking is where banks are required to open their systems to third parties, in accordance with the rules established by regulatory bodies.

Unregulated Open Banking is where banks choose to open their systems voluntarily, generally with the aim of offering a better experience for their customers.

What is Open Finance?

Open Finance is a broader concept than Open Banking and includes not only banking data, but also information from other sources, such as investments, insurance and even social media data.

In other words, Open Finance allows companies to access a customer’s financial and non-financial data in order to offer personalized and more comprehensive solutions.

Open Finance is seen as an evolution of Open Banking, as it allows companies to access a larger and more diverse amount of data, which can lead to more innovative and personalized solutions.

For example, an investment firm could use social media data to identify investment trends among a certain demographic group.

This means you can offer personalized solutions for this audience.

What is the difference between Open Banking and Open Finance?

The main difference between Open Banking and Open Finance is that the former focuses exclusively on banking data, while the latter includes both financial and non-financial data from multiple sources.

Furthermore, Open Finance is a broader concept that encompasses all financial services, while Open Banking is limited to banking data.

Another important difference is that Open Banking is often regulated, meaning banks are required to open their systems to third parties.

Open Finance is still an evolving concept and is not law in many countries.

Customized solutions

Finally, Open Finance has the potential to offer more personalized and innovative solutions than Open Banking, as it allows companies to access

data from multiple sources, including non-financial data such as health, social media and behavioral data.

This means companies can gain a more complete view of a customer’s profile, which can lead to more personalized solutions tailored to individual needs.

However, while Open Finance offers many opportunities, it also presents significant challenges. One of the main challenges is data security.

As data is shared between multiple companies, it is critical to ensure that it is secure and that the customer has full control over their data.

Furthermore, Open Finance presents regulatory challenges as it involves a wide range of financial services and data.

Deployment speed

Another important difference between Open Banking and Open Finance is the speed of adoption. Open Banking is already a reality in many countries, while Open Finance is still in its early stages. This is partly due to the lack of standardization and regulation around Open Finance.

However, many companies are exploring the opportunities offered by Open Finance and we are likely to see increased adoption in the coming years.

Conclusion

In short, open banking vs open finance are important concepts.

They have the potential to revolutionize the way financial services are provided to customers.

While Open Banking focuses exclusively on banking data, Open Finance is a broader concept that includes data financial and non-financial from various sources.

Although Open Finance presents significant challenges in terms of data security and regulation.

It also offers many opportunities for innovative companies that want to offer customized solutions tailored to individual customer needs.

Ultimately, as Open Finance continues to evolve, we are likely to see more innovation and adoption across the financial industry.