Towards the end of 2020 the Financial Sector Conduct Authority (FSCA) published its research report and consultation paper on Open Finance.
What is Open Finance?
“Open Finance is built on the principle of consumers owning the data that they create on financial service providers’ (FSPs) platforms and having the right to share that data with other FSPs should they consent. Open Finance is thus a framework to allow consumers and companies to access and share their financial data with third-party providers who can then use that data to develop innovative products, provided there is explicit and informed customer consent,” the FSCA explains. Global trends indicate that 63% of customers are willing to share their financial data with a competitor to get a better deal, 75% of FSPs expect Open Finance to result in increased competition, 15% of profits are at risk from Open Finance and 20% customer churn results from Open Finance.
Aim of the report
According to the FSCA, the aim of the report to is to identify the benefits and risks in the implementation of Open Finance in South Africa. These benefits range from personalised products and services for consumers, specialisation, ecosystem orchestration, and alternative revenue streams for financial service providers, and access to customer financial data not previously accessible for third party providers.
However, these benefits are accompanied by risks such as data privacy and data misuse, as well as the cost associated with framework development and a need for interoperability. To address some of these risks the paper has made recommendations around:
• ensuring informed consent and customer protection
• adequate dispute resolution mechanisms for parties involved
• Open API standards
• Commercial models, and
• Data protection
These recommendations are to inform licensing requirements around Open Finance and set the tone for risk-based supervision and enforcement. Click here to see the full report.