Building Open Finance in a Multipolar World

In a new article, Christine Munglo Wong, Ross Buckley, Dirk Zetsche, and I look at the issue of the evolution of open banking, open finance, and open data across the world. As we've discussed many times, one of the key issues, both from the standpoint of financial development, but also in today's increasingly multipolar mercantilist world, is data. And in this piece called Building Open Finance, we look at the different approaches that jurisdictions around the world are using to try to maximize the value of data to support the development of their financial systems and their economies. And we think about these three terms, open banking, open finance, open data. Open banking comes from an original process in the context of the European Union in the aftermath of the 2008 global financial crisis. That process results in a strategy embedded in what is called the Payment Services Directive 2, PSD 2, which puts in place a mandatory rule for the sharing of data by banks on the instruction of their customers. Effectively, it embeds individual customer control of banking data in the context of the European Union. The idea of open finance goes beyond just open banking and extends customer control of their data, not just in the context of data held with banks, but data held across all forms of financial institutions. And we see in the EU the process of moving from open banking to open finance. We're also seeing in a number of jurisdictions around the world movements towards approaches to develop open finance. Open data is a broader concept, and essentially it is the idea that customers should have control of their data wherever it may be, and that giving customers control of their data will not only empower those customers, but also enable better use of data. And in this paper, we begin by sort of charting the evolution of this idea of open finance, which in many ways started as almost a social movement and has then become a sort of mandatory choice in a variety of jurisdictions. We look across jurisdictions to see different approaches, and generally one can say that those fall into three categories, what are called market-led approaches, regulator-led approaches, and mandatory approaches. And what we catalogue across the world is that of these, the market-led approaches are honestly making the least progress. If we're looking at regulator-led approaches, we're seeing mixed progress. Probably our best examples of progress are in the jurisdictions which are putting in place mandatory data-sharing approaches. However, what we find is that just having a mandatory requirement for banks or ideally all financial institutions to share data of their customers on direction, we're finding that this isn't enough. That in fact, in order to make that sharing requirement actually work in practice, countries need to build infrastructure that makes it easier for individuals and financial institutions to share their data. And it's only in those jurisdictions where we are seeing the building of infrastructure, often on the basis of what we think of as first-generation digital public infrastructure strategies, DPI. First-generation DPI strategies typically focus on a combination of digital ID frameworks at the national level, interoperable electronic payment systems, particularly fast payment systems, and almost universal financial inclusion via financial institution accounts or wallets. And in countries which have put in place this core first-generation DPI framework of ID, payments, and accounts, it is in these systems where that framework is then used as the basis for a data-sharing infrastructure that we are seeing the greatest progress and the greatest success. And I think as a result of that, three takeaways when we think about strategies for building open finance around the world. First, mandatory works better than market-led. Second, building the infrastructure to make sharing work is probably even more important than whether it's a mandatory approach or a regulator-led approach. And finally, that data is emerging as the core of second-generation digital public infrastructure strategies across the world. And it's also the case that these sorts of data strategies are increasingly central not only to development, financial inclusion, overall growth, but also subject to focus in the context of our evolving environment of multipolar mercantilism.