Research commissioned by Luxembourg for Finance (LFF) reveals that Open Finance is proving to be ‘revolutionary’ for the financial industry.
According to the report by PwC Luxembourg, Open Finance is blurring the traditional lines between banking, insurance, asset management and payments. This shift merges these sectors into an interconnected network driven by data, technology and interoperability, reducing the reliance on intermediaries and brokers.
Tom Theobald, CEO of LFF, which oversees the development of the country’s financial centre, said: “As customer expectations evolve and data becomes centralised, Open Finance represents a true revolution. Europe’s financial sector is uniquely positioned to lead this transformation, spurred by a confluence of regulatory foresight, technological advancements, and demographic shifts.
“As always, however, a core challenge will be to ensure that the EU creates the necessary regulatory guardrails without stifling innovation or undermining European competitiveness.”
The report concludes that the Open Finance era is fundamentally altering the structural landscape of the financial industry. This transformation is accelerating due to three key factors: regulation, demographics and technology.
There are still several challenges to address, including personal data misuse, the lack of common industry standards and the downside of increased transparency. The report highlights that while Open Finance is changing market structures and increasing competition, the high costs of implementation could be difficult for smaller institutions.
Additionally, there are also worries that financial companies might use extensive data to focus only on their most profitable customers, leaving others behind.
Theobald added: “Open Finance is dissolving the traditional boundaries between financial sectors. So, this is a call to action for the entire industry. While it might be a challenge, Open Finance represents one of the largest competitive advantages for Europe’s financial industry: by enabling unprecedented access to financial products and tailored advice, we can help mobilise and channel the vast amount of money sitting idle into the European real economy.”
As Open Finance adoption increases, the report suggests this change presents both opportunities and risks for today’s financial companies, stating that businesses that do not adjust to this new landscape will fade into irrelevance, lose client relationships and be reduced to simply producing standard financial products.
Francois Mousel, Managing Partner at PwC Luxembourg said: “The era of Open Finance presents an opportunity for technological innovation, made possible by crucial regulatory frameworks established by the EU. Decision-makers are already waking up to the new reality: Open Finance is no longer optional, it’s a must have.
“We must collaborate to facilitate this revolution, creating a more integrated, efficient, and customer-centric financial ecosystem that will drive economic progress and technological advancement across Europe in the face of stiff competition from the US and Asia.”
Similar to Open Banking, Europe has emerged as the front-runner in Open Finance as well, with the UK attempting to play a critical role in its adoption and evolution. In April, the UK task force on Open Finance announced it would be chaired by the Centre for Finance, Innovation and Technology (CFIT).
