Embracing the future with open finance and FIDA

In the rapidly evolving landscape of financial services, the current proposal for the FIDA (financial data access) framework marks a pivotal shift towards open finance. This proposal not only broadens the scope beyond the precedents set by the Payment Services Directive 2 (PSD2), but also challenges organizations to rethink their business models in the context of a data-driven future.

Both open banking and open finance represent important steps in the financial services landscape — not only in Europe but globally, aligning with OECD strategies and unfolding across continents. As we stand on the brink of this transformation, the time is now for C-level executives to anticipate and strategize for the changes that lie ahead.

Open banking primarily focuses on the sharing of banking data (e.g. payment account information between banks and third-party providers), enabling services like account aggregation and payment initiation.

Open finance encompasses a wider array of financial data and stakeholders. It includes investments, pensions and insurance which can provide a holistic view of a customer's financial situation. It paves the way for more personalized and innovative financial services, leveraging the broader scope of financial data now accessible for sharing and analysis.

While open banking focuses on enhancing the maturity, reliability and efficiency of data exchanges within specific financial domains, open finance takes a more transformative approach. Its objective? To dismantle the silos that have traditionally segmented the financial sector, fostering a more integrated ecosystem where various stakeholders can share data previously confined within isolated realms.

With both, the consumers themselves control their financial data sharing with authorized third-party service providers that use application programming interfaces (APIs) to access financial data, allowing the creation of different financial products and services.

In Europe, the shift towards a digital society is underpinned by a solid regulatory foundation, notably the General Data Protection Regulation (GDPR). This strong basis not only gives us a competitive edge as we embrace more digital advancements, but also enhances our global standing in the digital economy, making Europe a trusted leader in the digital age.

The transition from traditional banking — where trust has been nurtured over decades — to a more multifaceted open finance ecosystem, brings complexities requiring heightened transparency.  

That’s where FIDA enters the picture as it plays a crucial role in setting stringent requirements for customer empowerment and control over their data. By emphasizing the importance of transparency — not just in data sharing but also in making control mechanisms accessible and understandable to consumers — FIDA aims to solidify trust in open finance. This regulation acknowledges that safety extends beyond mere data protection to encompass how information is shared and controlled by the customer, ensuring that open finance is underpinned by a solid foundation of trust and security.

In the US, the tech landscape is predominantly shaped by big tech platforms. Conversely, the EU envisions a future less dominated by mega-platforms and more characterized by a distributed system. This European model advocates for a broad network of stakeholders engaging in seamless data exchange within a decentralized framework.

This divergence presents a critical juncture for the market's evolution. Historically, the digital arena, left unchecked, has favored the emergence of dominant platform models, leading to the consolidation of power among a few large entities. This poses a significant challenge for open finance, particularly in Europe, where the objective is to harvest the benefits of this model while mitigating the risks associated with potential monopolies.

Data aggregators will play a central role in operationalizing open finance, and the technical infrastructure required to support efficient data aggregation hints at the formation of large, influential stakeholders. Recognizing this, the FIDA regulation incorporates measures to counterbalance these tendencies. Unlike previous European regulations (e.g. GDPR and PSD2) which mandated the free provision of certain services (access to data or portability), FIDA introduces remuneration schemes for data exchanges. This shift acknowledges the value and potential costs associated with data sharing, embedding a mechanism to manage remuneration right from the outset. By explicitly recognizing the value of data exchanges and introducing remuneration frameworks, FIDA aims to sustain a diverse and competitive ecosystem. 

Financial institutions have typically relied on proprietary data as the cornerstone of their business models. However, the direction set by FIDA necessitates a paradigm shift towards leveraging external data sources. This is not merely a regulatory compliance exercise but a golden opportunity to encourage innovation, enhance customer experiences and drive sustainable growth.

For stakeholders previously outside the PSD2 scope, FIDA represents both a challenge and an unparalleled opportunity. These entities must now establish data-sharing mechanisms from scratch, a daunting task that also offers the chance to redefine their roles in the financial ecosystem. By embracing open finance, they can uncover new avenues for collaboration, diversify their offerings, and ultimately, disrupt the market in ways previously unimaginable.

To navigate this transition successfully, businesses must undertake a comprehensive evaluation of their current data capabilities, explore potential partnerships and redefine their value propositions in the context of a more interconnected and data-rich financial sector. It's a call to action for C-level leaders to spearhead this transformation, championing the shift towards data-driven models that not only comply with FIDA, but also capitalize on the opportunities it presents for innovation and growth.

While the specifics of the FIDA compliance may seem distant and not fully fleshed out given its current proposal status and pending trialogues, the C-suite should view FIDA as a compass pointing towards the future strategic direction. It's a signal of the regulatory landscape's evolution over the coming years, outlining the contours of a sustainable business model in the open finance era. FIDA should be approached not only as a compliance checklist, but also as a catalyst for re-evaluating and potentially enhancing existing business models while identifying and mitigating risks.

Engaging in scenario planning now can provide valuable insights. Imagine scenarios where FIDA mandates sharing data with new stakeholders or responding to customer requests for data sharing. What services could your organization offer in response? What would be the implications for your business model? This proactive exploration can illuminate paths forward and prepare your organization for forthcoming changes.

The complexity of understanding current data exchanges and envisioning future scenarios necessitates a comprehensive grasp of your data landscape. Here, leveraging existing IT governance frameworks introduced by regulations like the GDPR becomes invaluable. GDPR's requirements for data inventory management — identifying data types, exchange partners, and the purposes of these exchanges — can serve as a foundational tool for this analysis. This inventory not only aids compliance but also offers a strategic overview essential for adapting to open finance's demands.

Viewing regulations such as FIDA as opportunities rather than obligations, aligns with a strategic approach to regulation as a whole. It represents a collectively endorsed strategy for our society's future, setting the direction and acting as an enabler for innovation and competitive differentiation in a global competition.

Adopting a forward-looking approach means viewing FIDA through the lens of opportunity. It aligns perfectly with the KPMG Trusted Imperative, which advocates for embracing digital transformation responsibly, ensuring growth and innovation are achieved without compromising stakeholder trust. This approach not only addresses the immediate demands of compliance but also lays the foundation for a robust, resilient, and trust-based relationship with customers and partners.

To ensure that your business remains at the forefront of this exciting journey into the future of finance, reach out to our KPMG team of experts today!