How FIDA opens unprecedented opportunities: 5 innovative and concrete use cases
The FIDA draft proposal, published almost 18 months ago, came as a bombshell in the financial services industry. Even if all players knew what to expect, the scope of the Financial Data Access framework confirms many opportunities and challenges. We know about Open Banking and have heard about Open Insurance and Open Wealth initiatives, but are we entering the era of Open Everything? These 5 Open Finance use cases prove it.
1. Enhanced credit scoring
With the users’ permission, credit institutions can already use Open Banking to gather financial information, pulled from payment accounts in real time, and make quicker and more informed creditworthiness decisions.
With any type of account now available with Open Finance – savings, crypto assets, securities, etc. – scores will be more and more accurate and better decisions will be made, eventually benefiting both the users and the lender. Also, it is interesting to note that under FIDA, data users will have the possibility to access data used in firms’ creditworthiness assessments. This will expedite data collection and credit decisions.
Innovation: ✶✶✶ | Usefulness: ✶✶✶✶✶
2. Suitability & appropriateness assessments
Suitability assessments required under regulations (MiFID II and IDD, respectively) are costly and usually not very user-friendly. This step might nevertheless soon no longer be required, at least not exactly in the same way.
Financial institutions acting as data users might indeed leverage FIDA to retrieve data collected by other financial institutions in the context of suitability and appropriateness assessments. Data users will still need to verify data accuracy, but the user experience will hopefully significantly improve, together with the customer knowledge enabling better investment advice (see below). The access to a large set of financial data in the context of FIDA will enable financial institutions to ensure a certain diversification of their customers’ assets and reduce risks for both their customers and themselves.
Innovation: ✶✶✶✶ | Usefulness: ✶✶✶✶
3. Investment advice
Account aggregation at its finest to provide users with personalized and data-driven financial guidance: this use case has all the ingredients to flourish in this upcoming Open Finance era.
Both retail and private banks will be able to access a large variety of data, such as savings or securities accounts, and will thus be able to provide tailor-made investment advice to each of their customers, irrespective of their wealth. It could even be combined with robo-advisors or AI-driven platforms to, on the one hand, improve efficiency, and on the other, reduce costs for the investor. An Investment Advice service could first leverage FIDA APIs to source data from multiple financial institutions. It would include bank account information, investment portfolios, and more! Such a solution could then analyze and offer tailored investment advice, from asset diversification to risk reduction and the overall portfolio’s optimization.
Innovation: ✶✶✶✶ | Usefulness: ✶✶✶✶✶