Financial ecosystems are changing to better serve customers and enhance the personal finance experience. The idea of open banking started to become popular in the early 2000s as online banking and mobile applications became more prominent in personal finance. This philosophy, which is the foundation for the future of finance and our economy as a whole, allows third-party financial institutions to use secure connections to pull and analyze data from your bank accounts.
With open banking, customers can access enhanced analytics about their transaction history and easily share bank data with other applications and businesses – think Venmo or PayPal. It took many years for consumers to gain today’s level of comfort with this concept, but as its use cases were tested, consumers began to want more from open banking.
Next, came open finance. Open finance builds on the same concepts and principles as open banking, but it takes things up a notch. With open banking, a customer’s financial picture is still incomplete: mortgages, loans, and retirement accounts are all outside of the scope of open banking. Open finance merges valuable insights and information from a person’s overall financial picture.
As personal finances become more easily connected, they form a web, making it easy to manage financial decisions and draw actionable insights from a number of sources. Open finance might look like allowing a mortgage lender to see the holistic view of your financial situation before determining your mortgage loans, instead of just your income, credit score, and checking account. Open finance will continue to evolve, and eventually, experts believe an open economy will be the next prevalent concept in the chain.
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