Open finance: Are you ready for the next major frontier in banking innovation?

Open finance is the next frontier in data sharing, unlocking innovation, personalisation, and new revenue streams for financial institutions ready to embrace the shift.

Ten million people in the UK now use open banking, a milestone that underscores the growing opportunity within the data-sharing economy for financial institutions.

In 2023 alone, the total addressable market for open banking in the UK stood at £108 trillion, reflecting the cumulative value of consumer and commercial account-to-account transactions—from credit transfers to direct debits and instant payments. The scale is even larger in the US, where the market reached £899 trillion; in the European Economic Area, it hit £280 trillion.

But this is just the beginning. The next phase of data sharing—open finance—is set to take this transformation even further, unlocking innovations across a broader range of financial products and services.

While open banking revolutionised account-to-account, peer-to-merchant and peer-to-peer payments—along with account verification and aggregation—open finance is expanding the scope of data sharing across a broader financial ecosystem. From enhanced KYB/KYC and cash flow management to credit assessment, and investments, open finance is reshaping how businesses and consumers interact with financial services.

For businesses, access to richer data sets enables a more holistic view of customers’ financial lives, unlocking new levels of personalisation and engagement. At the same time, open finance creates new revenue streams through product innovation, partnerships, and real-time insights—all while increasing operational efficiency and reducing costs.

In practice, open finance is already powering a new generation of financial tools and services, including:

• Alternative lending platforms: connecting lenders to borrowers with shared data informing a person’s suitability for specific products and their creditworthiness.
• Robo-advisors: using algorithms to align investments with an individual’s risk appetite and wealth objectives.
• Financial wellness applications: helping users develop financial literacy through budgeting and spending monitoring and providing tailored advice.

Clearly, banks have exciting opportunities to innovate and grow. But what steps must they take to embrace the transition from open banking to open finance?

A complex regulatory landscape to navigate

Navigating the regulatory landscape is crucial for financial institutions looking to adopt open finance. Compliance extends across multiple frameworks, including GDPR, the Financial Services and Markets Act 2000, the Payment Services Regulations 2017 and competition law.

Without diving into the specifics of each, financial institutions should focus on five key regulatory priorities:

• Customer consent: customers must give explicit and informed consent before sharing data.
• Data security: financial institutions should implement robust security measures to protect sensitive data from unauthorised access and breaches.
• Liability: businesses should establish clear liability frameworks for data breaches and other incidents.
• Third-party risk management: the risks associated with sharing data with third-party providers must be managed effectively, and organisations should be able to demonstrate clearly how they’re doing this.
• Transparency and fairness: all data-sharing practices should be transparent, and customers should be treated fairly.

In addition to potential legal hurdles, companies embarking on an open finance journey need to have a good understanding of the enabling technology and its capabilities.

Understanding modern tools and how to ensure they work are key

Central to open banking and open finance are APIs (application programming interfaces). These digital tools bind systems together, allowing data exchanges. Thanks to the tech revolution since the 2007-2008 financial crisis, the industry has become familiar with APIs.

However, financial institutions still operating on decades-old systems have several options for integrating with modern tools, including:

• Phased migration: involving gradually replacing a system over time.
• System wrapping: creating a layer of technology (a wrapper) around an existing platform and exposing its functions to other technologies.
• API-led integration: creating specific APIs that enable a system to communicate with modern technology.
• Microservices architecture: replacing self-contained systems with an atomised set of platforms capable of communicating with each other.

Most importantly, businesses transitioning to open finance must be confident that the technology works. This requires strategic and practical measures, including impact assessments of what happens if an open finance tool breaks or experiences a dip in performance and an agreement on the information needed to populate fields in new messages.

Companies will also need to gain a complete picture of any data encryption issues encountered and make regulatory checks to ensure compliance with GDPR, know-your-customer and anti-money laundering rules.

Furthermore, decisions must be made on processing information between behind-the-scenes platform infrastructure and user interfaces, such as ledger updates and audit trails.

Before rolling out open finance solutions, financial institutions must rigorously test their systems across multiple dimensions—functionality, reliability, stress, regression and compliance. This ensures that platforms work as intended and can withstand peak transaction volumes while meeting stringent security and regulatory standards.

Where possible, organisation-wide testing should be consolidated within a single, centralised platform. This reduces inefficiencies caused by multiple siloed testing engines, ensuring a smoother and more cohesive implementation process.

Conclusion

Much of this transition will feel like familiar territory for financial institutions already embracing open banking. But open finance is more than just an evolution—it’s a fundamental shift in how financial data is accessed, shared and leveraged for innovation.

Institutions that act now will gain a first-mover advantage, strengthening customer relationships, unlocking new revenue streams and positioning themselves ahead of the competition.

The question isn’t whether open finance will reshape the industry—it’s how soon businesses will act to seize on the opportunity. In 2025, prioritising an open finance readiness assessment will be key to staying competitive in this rapidly evolving industry.