Open Finance - The Powerful System behind the Convenience of Fintech Services
Fintech partners and financial institutions have been working together to offer innovative solutions technology to daily struggles and worries. The glue that holds the two together is open finance, a new concept that can be confusing to some people. So how can you grow your business by utilizing open finance? Let’s explore what open finance is and its capabilities!
What is open finance, and how does it work?
Open finance may seem like a very broad term. At one glance, you’d think that you understand what it is. Does it mean that all your financial needs are compiled into one open system? Or is it another term for open banking, which allows customers to manage their money anytime and anywhere through API implementation? Both are correct in their own way.
To define it, open finance is a third-party data-sharing model that allows users to access financial data. But it’s not identical to open banking. In fact, open banking is more like a branch to the umbrella term of open finance. The latter sources data not only from banks but also from fiscal authorities, insurance, and even utility providers.
The way open finance works would be similar to open banking. Fintech partners can directly access customers’ financial data (with consent), so they can develop better and more inclusive products. The general concept is that all information and data will be stored in one place (open API). But the data is controlled by the data owner—the customer, in this case. Therefore, neither open finance nor open banking violates the privacy of customers.
The sought-after data mainly contains basic personal information such as full name, source of income, birth date, and transaction history. This data may look minuscule to others, but financial institutions and fintech partners need to understand customer behavior and accelerate their business.
Why is open finance important?
Open finance can transform the digital banking industry. In countries like Mexico and Indonesia, financial inclusion is a priority as there are still many people who can’t access banking services, like those who live in big cities. According to data from Indonesia’s Financial Services Authority, almost 25% of the country’s population doesn’t have access to banks.
With open finance, data collected and shared from corporations, insurance companies, and electrical companies would help fintech partners to assist more people in need.
Before getting into the reasons why open finance plays a crucial role in the current financial ecosystem, let’s first understand the advantages of open finance. First, it cuts costs and time spent during the onboarding process. Since the data can be accessed—and rechecked—from the open finance API, the process is more streamlined. As for customers, they can now manage all financial activities in one dashboard or super app.
Then, developers have the building blocks to build more customized solutions. One example of this is the payment gateway that lowers transaction fees, which in turn helps the growth of micro, small, and medium enterprises (MSMEs), as 40% of e-commerce transactions use cash or bank transfers.
Open finance, the future of fintech
In 2021, Deloitte mentioned how 41% of European customers could not open a new bank account or service during the pandemic. Not because of the virus per se, but due to the physical restrictions which prohibited them from going to a branch office. This inconvenience can bring an enormous impact on everyday routine. Imagine the terror of being unable to access your assets, even for one day, let alone for a month.
With open finance, fintech partners are committed to providing the public with reliable digital services. Rain or shine, digital financial services can still meet the customers’ demands and make the data work for them.
In the upcoming years, the integration of open finance API will be greater. This means that it will be possible to have your mortgage approved in a matter of seconds, receive online loans seconds after you applied for them, or have a tailored-for-you banking product with the best interest or credit rate. For customers, open finance is the means to practical life. As for fintech partners alike, it’s the tool to have more income pools.
More companies make fintech partner to utilizing open finance
Not just fintech partners, traditional banks and investment bank have caught wind of the open finance API. In Indonesia, big players and start-up companies in financial technology sector have embraced the utilization of open finance API. Ayoconnect, as the largest open finance platform in Southeast Asia, proudly partners with many companies in Indonesia to realize the future of financial services.
1. Bank Mandiri
One of the largest financial institutions in Indonesia, Bank Mandiri, has millions of customers and handles millions of Rupiah transactions per day. They acknowledged one pain point they wished to eliminate: recurring bills. As more customers use credit cards for daily transactions, Bank Mandiri launched its Power Bill feature. It’s powered by Ayoconnect’s Autobilling API, which integrates over 200 merchants simultaneously.
With this feature, Mandiri card holders can automatically pay recurring bills such as utility bills, internet or mobile data, cable TV subscription, and insurance premiums. As a result, Bank Mandiri sees uptrends of 19% in sales volume and 23% in transaction counts from 2019 to 2020.
Ayoconnect’s API can also authorize digital payments via e-wallets. DANA is among Indonesia’s e-wallets with the most users. During the pandemic, DANA reported that 98% of transactions made with their services were online, ranging from money transfers, purchases at e-commerce, and recurring bill payments.
Recurring bill payments, mainly for health insurance premiums and utility bills, were recorded to have the most demands. With that insight, DANA launched its bill payment feature so customers can directly pay their bills on their app instead of from other e-commerce platforms. Since the launch, DANA has gained 10 million new users, and they have plans to keep utilizing Ayoconnect’s Digital Products API to develop new and exciting services.
Bukalapak is an all-commerce platform that has empowered over seven million Mitra Bukalapak in 50 cities across 28 provinces in Indonesia. The giant tech company seized an opportunity to partner with MSMEs and expanded its services to help people in rural areas.
Instead of changing the old ways, Bukalapak has modernized it by working with Mitra Bukalapak as its “branch”, which offers bill payment services to customers in the neighborhood. Bukalapak uses Ayoconnect’s Digital Products API to build bill payment features in their platform.
Open finance is no longer a pipe dream; it’s already here as an all-encompassing solution for fintech partners. Still, it’s not too late to start embracing open API. All you have to do is utilize a reliable open API platform from Ayoconnect, the largest open finance platform in Southeast Asia!