Hi Shane,
I would say UK is ahead on Open Banking. The origins of Open Banking are pre-Brexit with the actions leading up to the mandate of PSD2 (Payment Services Directive 2) in 2018, with the UK regulators supporting UK institutions' participation. I find the FCA has been incredibly open about innovation and their intentions, e.g. https://www.fca.org.uk/news/statements/fca-and-psr-set-out-next-steps-open-banking
(Unsurprisingly, consumer convenience, fraud and protection orientated.)
Example of Open Banking APIs:
https://develop.hsbc.com/apis
HOWEVER, IMO, Open Finance is far less open because these get closer to what organisations view as origination of business, and hence proprietary. Just my two cents, but I see these situations wrapped up as BAU commercial banking or commercial partnerships. This has been happening in FX and payments for years with liquidity pools plugging into the centralised flows of the bank but otherwise treated as clients from the perspective of the commercial bank. For lending, WSJ has been recently featuring articles in the past few months on lukewarm loan growth. (No kidding! No one wants to be borrowing more than they have to at these rates, no lender wants to extend financing to weak or getting weaker credit situations.) It makes more sense to the bank to be a wholesale funder to someone else acting as a non-bank financial institution that is better at origination and mitigation of loss, often thanks to better technology and data/analytics.
"Today's Hot Banking Business Is Lending to Lenders: Financing for nonbank firms is helping banks prop up loan growth and drive trading revenue"
https://www.wsj.com/finance/banking/todays-hot-banking-business-is-lending-to-lenders-51361036
The article talks about banks struggling to organically expand their loan books. But bigger banks are lending to nonbank lenders like fintechs or asset managers (credit funds, hedge funds) and participating in the repacking of this exposure as securitisations, which are sold onwards to investors. Of course the banks are paying away yield, but they can demand heavy collateral against these loans which deducts the regulatory capital charge the bank records against the loan exposure, so the trades are capital efficient from a RWA (risk weighted assets) perspective. The article concludes with the observation that traditional lenders do not have trading divisions and so cannot participate in this value chain.
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Kara K.W. Byun
Head of Fintech
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Original Message:
Sent: 20-04-2025 19:19
From: Shane Jocelyn
Subject: Open Banking to Open Finance?
Dear All - curious to ask if anyone in the community has experience working with open banking or open finance? Both institutions and individuals are increasing the number of banks they work with to fulfil different parts of their financial goals. With the development of providers such as Plaid, there are increasing shifts going from Open Banking (focusing mainly on transactions and cash balances) to Open Finance (mortgages, pensions, investments, brokerage transactions).
Is the UK ahead or behind on developments in this space? And what are the key challenges that exist before we see vendors able to offer a seamless holistic view of an investors wealth across products, custodians, asset classes?
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Shane Jocelyn
Investment Analyst
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