In simple terms, open finance empowers "every Juan" financial freedom by giving them better control over their personal and financial data, catalyzing the development of products and services that are responsive to their needs, said Ida Tiongson, the chairman of the Board of insurance company Pru Life.
Gracing the Daily Tribune's digital show Straight Talk, Tiongson, who also represents the FinTech sector at the Bangko Sentral ng Pilipinas' Open Finance Oversight Committee, Tiongson said open finance allows the unbanked and unserved sector to have their financial footprint digitally, thus providing them access to financial services.
"The open finance framework espouses consent-driven data portability, interoperability and collaborative partnerships among financial institutions, leveraging on permissioned access customer information," she said.
For a better perspective, Tiongson cited an example an unbanked man named "Juan" and how open finance will benefit and impact his daily life.
According to her, since most Filipinos use e-wallets, particularly the more popular brands, like GCash, PayMaya, or UnionBank, this allows the users to build their digital financial footprint and improve their "credit score" every time they use the e-wallet.
Historical information vital
"Juan can allow banks and other financial institutions his financial information or his usage history of the e-wallet and be able to have a good credit score that would qualify financial access," Tiongson said.
"In short, another institution can use records from one institution to complete his credit score and determine his financial capability. And that is a world-changing face of the future of finances where we're going into."
In traditional finance, an unbanked person is considered outside the financial system and will have difficulty accessing financial services.
But open finance eliminates this issue, Tiongson said.
Today, a person with no active bank accounts would be considered outside the financial system and, therefore, would struggle to access these options.
The open finance system enables users to trust third-party APIs (application programming interface) to use their financial data, such as mortgages, savings, pensions, insurance, and consumer credit, to be their economic footprint.
More importantly, open finance would open up a range of financial services to consumers and give them greater insights into their financial health. Users of e-wallets, even without an active bank account, could build their credit score by drawing on data from their financial accounts and not just the data held by the bank.
"Even without having a bank account or zero records, whether insurance or bank, you would now be able to advise that institution that, 'you know, this is my data, will you provide your products or services to me?' And they will assess that," Tiongson explained.
"And that's the beauty of it."
