By Michel Haoses.
The International Monetary Fund (IMF) today announced that a coalition of international organisations has launched high-level guidelines for public authorities seeking to use open finance to accelerate digital financial services and innovation and increase usage of a broader range of financial products.
According to the IMF, 76% of the world’s population now have access to a financial account, and open finance can expand their use and increase the benefits customers derive from financial services.
In an open finance system, the customer can give consent to a financial institution to share their data with other financial institutions without the need for bilateral contracts, which can reduce information asymmetry among institutions and foster a more competitive market for new and innovative products, services, and models to emerge.
However, the IMF mentioned that open finance may bring challenges for customers as more data is exchanged between financial sector providers, which heightens privacy risk, day security, and protection. Therefore, the high-level guidelines call on public authorities to adopt an approach balancing customer protection with promoting innovation.
Her Majesty Queen Máxima, the United Nations Secretary-General’s Special Advocate for Financial Health (UNSGSA), said that as open finance becomes more prevalent, there is an opportunity to shape it in a way that benefits everyone, especially those who have so far been financial excluded or underserved.
“While we have made great strides in expanding access to financial accounts, much work remains to ensure that individuals are actively using and benefiting from a broad range of financial services that meet their complex financial needs, including savings and insurance products,” she said.
She added that with appropriate data and consumer safeguards in place, open finance can play a transformative role in deepening financial inclusion and enhancing consumer financial health.
“The entry of new financial players can boost innovation and competition, but it also creates regulatory challenges,” said IMF managing director, Kistralina Georgieva.
“Competition may be at risk if dominant players from other sectors can access financial data without sharing their own. Public authorities will need to closely monitor the ecosystem to ensure it meets policy objectives,” she noted.