According to Grant Thornton, there has been a “shift in demand” from the market and regulators to provide additional benefits to consumers through “greater choice and access” to products and services. As a result, just last week the firm announced a cross-industry collaboration with multinational law firm, Pinsent Masons, in a bid to support businesses with how they can share data “safely, efficiently and effectively” across financial services in a push to enable open finance.
As part of the collaboration, both firms will integrate their expertise to form a “holistic” offering to clients. Niresh Rajah, head of Data, RegTech and Digital Assurance Practice at Grant Thornton, explains: “From both a legal perspective and from a professional services perspective, we see clients struggling in terms of this knotty problem around data sharing. We felt that this partnership is the perfect avenue to help our mutual clients and to help our individual clients to navigate the complexities of data sharing, and I think it needs a legal firm and a professional service firm to come together”.
The new collaboration between the two firms will include advice around data sharing and licensing, data ethics, data platforms, data analytics, artificial intelligence, creating data strategies, and establishing “fit for purpose” data management. Andrew McMillan, head of technology and digital markets at Pinsent Masons, says: “By coming together, we’re able to offer a much broader range of services, so not just looking at the legal and compliance side, but also thinking more about strategies and ways of implementing that, the ways of valuing data, and ways that data can be monetised.”
But why has there been a shift in demand from the market? According to a Financial Conduct Authority (FCA) survey, businesses have discerned how much the pandemic has “driven an increase” in customers engaging with their finances digitally. Additionally, Rajah explains that the past few years has taught businesses that the dataset which an organisation has is “incomplete”, which poses a problem since value for businesses “can only be gained by having a complete set of data”. He states: “The old adage that having data that only remains within one organisation is ‘enough’ has gone. Ultimately, the vision of the collaboration is about the provision of better products and services as a result of sharing data together, to create value for the end customer.”
What is open finance and how will it enhance data sharing? Rajah explains that open finance “builds on the concept of open banking by extrapolating what open banking is doing” in terms of current account access to financial services and products. “Open finance hopes to streamline the customer process by sharing customer history, with a much wider impact affecting consumer banks, mortgage providers, consumer credit firms, investment and pension funds, as well as general insurers and intermediaries” he clarifies.
At the forefront of open finance is focusing on how sharing data from a customer standpoint results in a “better product or better service” being derived for the customer. According to a FCA report, open finance is based on the principle that the data supplied by and created on behalf of financial services customers is “owned and controlled” by those customers. Therefore, a financial services customer who consents to a third party accessing their financial data can be offered “tailored” products and services. “The concept will allow these individuals to engage with their finances in a more efficient manner and to make better financial decisions,” McMillan adds.
What benefits does open finance provide? As Rajah discusses, open finance aims to “improve the way” consumers and SMEs manage their finances and “improve the way” companies in the financial services ecosystem interact with each other and with their customers. He asserts: “This is done by utilising application programme interfaces (API’s) to create optimal financial products and services across third party providers, underpinned by sharing data – both open data which is available publicly, and user/customer data, which is provided with user consent, and with strong data security and privacy to enable verified firms to share data.”
Ultimately, this creates opportunities for customers to be provided with “better products and services, at the best price points, in a digitally optimal way that is user-friendly, fast and secure”. According to Rajah, open finance provides an opportunity for professional service firms to be “leading” and “helping a major drive” which supports end customers. “I don’t think there are opportunities for professional services firms to really help drive an industry or drive a financial services ecosystem,” he shares.
Meanwhile, McMillan adds that from a professional services perspective, businesses who share their data through open finance will be able to “make better decisions” and make them “more efficiently”. He says: “By letting this technology loose on the data, it will generate insights that we haven’t been able to imagine before. By pooling it with other data, other people are able to derive insights from that, and then provide it back to businesses.” Moreover, he adds finance providers will be ”better able to quantify their risk” in deciding whether or not to provide finance.
The FCA expands on this by declaring that open finance allows for “more accurate creditworthiness assessments” as the increasing access to credit will enable third parties to review cash flow “holistically”. It also allows for “improved advice” as open finance would “make it easier” for an adviser to “quickly” get a financial picture of a customer. Meanwhile, the concept of open finance also incites “increased competition between firms” and product innovation, Rajah shares – including “greater tailoring of products to suit individual circumstances and needs”.
However, this isn’t to say that open finance doesn’t come with its own set of risks. In particular, Rajah explains that legacy organisations have historically “protected their data. However, open finance seeks to open that up so if you’re a legacy player, you’re no longer able to hold onto that data”. McMillan explains that it will “damage” legacy organisations if they are not willing to take risk; “If organisations approach it in the way of ‘we’re doing this because we have to’, they’re going to find massive detriment to their market share and customer viewpoints,” he imparts.
Additionally, Rajah shares that there are three challenges posed by open finance, the first being the trust aspect of organisations willing to come together and share their respective data. “Second is the quality of data that needs to be in place, and then the infrastructure that needs to exist to be able to share vast volumes and complexity of data,” he states. Furthermore, the FCA’s survey found that respondents are worried about the asymmetrical information access available through open finance. In particular, they were concerned that product similarity resulting from a focus on price could “reduce consumers’ choice and potentially decrease overall product quality”.
However, McMillan declares that “a greater pooling of data to allow efficiencies to be driven will benefit everybody”. He highlights: “Businesses are able to make decisions on a far more informed basis than has ever been the case previously”. Rajah adds that open finance will allow firms to create “better products”, and end customers will be able to access “better products, better services and, in some cases, better price points.”
Nevertheless, both Grant Thornton and Pinsent Masons hope for their collaboration to be “the first port of call for data driven clients who are looking to centre check or improve their strategies”. McMillan discloses that the firm is already seeing traction and work in other areas which will lead to “increasing demands within those sectors for mechanisms that can facilitate their access to data”, including the healthcare sector, social housing, garden communities, and the energy sector.
He concludes: “Because we’re able to offer a holistic service rather than a piecemeal service, I think we will be very well positioned to help them with that. But essentially, where I would like to see the collaboration in two or three years is for it to be a market leading service offering that covers all bases, and I don’t think we’ve seen that before.”