Open finance vs open banking: are they the same thing?

4 min readOct 25, 2022

As a natural continuation of open banking, the opening up of payments and data services, open finance is designed to further enable competition in highly secure and innovative ways, benefiting both businesses and consumers.‍

But the difference between open finance and open banking is not entirely obvious, so in this blog, we’ll explore both in more detail, and look at how they can help businesses and consumers alike.‍

Open finance vs open banking

Open banking is the sharing of consumer data between banks and regulated third parties with the consent of the consumer. Open banking is primarily focused on payments and data. Payments via open banking technology are safer, faster and less costly than legacy alternatives, and data services enable consumers to make better informed financial choices, like credit checks and loan assessments.‍

This outline shows how Third Party Providers (TPPs) are using open banking to provide a wide variety of different services to UK consumers.

(Open Banking, 2022)

Open finance is defined by the UK’s Financial Conduct Authority (FCA) as the “extension of open banking-like data sharing to a wider range of financial products, such as savings, investments, pensions and insurance”. To summarise, open finance is a range of financial products supported by open banking technology.‍

Is open finance the same as open banking?

Though they may sound similar, open finance and open banking aren’t the same. Open finance is an extension of open banking, where a variety of traditional and new financial services are enabled by the consensual sharing of consumer data by banks. According to UK Finance (2022), open banking has set the foundation for open finance to scale and flourish.‍

In addition, despite them being different concepts, open banking and open finance are based on similar principles. Common grounds include enhancement of innovation, fair and strong competition, high-level security and a clear focus on consumers. For example, the process of credit checking for a loan would become more transparent and a lot faster with an open finance third-party provider.‍

How is open finance beneficial to the UK market?

Just like open banking, it is envisioned that open finance will give retailers and businesses the opportunity to personalise and tailor their services more effectively, and thus increase competition in the long run. Having access to their customers’ data will help them drive value-focused solutions and build stronger brand loyalty with the consumers, positioning their individual wants and needs at the centre. Simultaneously, it will help businesses reduce costs while creating efficient solutions.‍

Currently, there is no regulation for open finance. However, a group of large and mid-sized fintechs have formed the Open Finance Association to develop the underlying architecture of open finance in the UK (The Fintech Times, 2022). The association is aiming to “promote a healthy and sustainable fintech framework, in which consumers and businesses all benefit from improved, innovative services”, according to the Association’s Chair, Nilixa Devlukia.‍

In the UK, appropriate action is being taken to set the right open finance ecosystem, with fintechs and policymakers working together. The lessons learned from open banking will make it easier to predict and understand the possible challenges and vulnerabilities associated with creating a sustainable and secure environment for the open finance industry to grow.‍

Below is the regulatory timeframe of open finance in the UK, as expected by Deloitte. We have also provided you with a mini glossary to help make the jargon less confusing.‍

  • Smart Data: an efficient and secure system that allows trusted third parties to access customer data held by firms (BEIS, 2020),
  • Smart Data Working Group: a group aiming “to support the development of systems and standards that facilitate smart data innovations” (GOV.UK),
  • Corporate Finance Institute (CFI): an educational platform for finance professionals,
  • The Department of Business, Energy and Industrial Strategy (BEIS): a UK ministerial body responsible for business, energy, science and innovation, climate change and industrial energy,
  • Financial Conduct Authority (FCA): the financial services and markets regulator in the UK.‍
(Deloitte, 2022)

‍A little bit about Citizen

Citizen (a ‘TPP’) was one of the first fintech providers to offer open banking-based services in the UK. Our service enables instant cardless payments — allowing businesses of any size or type to receive and send funds that reconcile immediately, with far lower fees than debit or credit cards, and a user experience that simply delights.‍

Open banking is transforming the way we pay. Try it for yourself, or contact Citizen for a demo.

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