Open Finance: A Financial Technology That's Powering the Fintech Boom

The term “fintech” frequently appears lately. Fintechs has grown in popularity for a good reason: the number of users is growing. According to the World Bank, at the time of its inception in 2007, fintech users constituted only about 7% of the global population. The figure then rose to 20% in 2011, 36% in 2014, and 78% in 2017. The total value of fintech transactions in Indonesia has reached US$904 million. But how did fintech evolve into what it is today? Well, open finance might play an essential role in that.

What are examples of fintech companies?

Fintech companies or fintech startup refers to the integration of technology into offerings by financial services companies in order to improve their use and delivery to consumers such as blockchain and insurtech, thats what make the different from traditional bank and traditional financial company. The goal is to make it easier for customers to access various financial services. The scope ranges from payment technology, loans, and insurance, to digital wealth  management.

Fintech company examples are always on the lookout for new developments. In this context, “tech” refers to the most recent technology. For example, cloud-based financial service providers or those supported by artificial intelligence are currently classified as fintech. So, it is not surprising that many fintech companies today are startups.

The transformation from fintech 1.0 to fintech in 2022

In a paper titled "Fintech Evolution: A New Post-Crisis Paradigm?" by Douglas W. Arner, Jànos Barberis, and Ross P. Buckley, it is stated that the evolution of fintech can be divided into three distinct eras. Each era marks a shift in how consumers interact with their money. Here's a breakdown of each period:

1. Fintech 1.0 (1866-1987) - The beginning of the fintech industry

The initial generation of fintech services began with the development of infrastructure that would later support global financial services. These infrastructures were the first transatlantic cable in 1866 and Fedwire in 1918. Both allowed customers to transfer funds electronically using technologies such as telegram.

In 1967, Barclays installed the first ATM, ushering in the era of fintech 2.0. This was also when the financial system switched from analog to digital. NASDAQ, the world's first digital stock exchange, was founded in 1970. SWIFT (Society Worldwide Interbank Financial Telecommunications) appeared as a financial institution communication protocol.

2. Fintech 2.0 (1987-2008) - Fintech Industry Boom

The 1990s saw the first movement towards digital banking in the financial industry. Customers began to manage money differently. The birth of Paypal in 1998 signaled the emergence of a new payment system. However, due to the global financial crisis in 2008, the fintech 2.0 era ended, pushing innovation for the next period.

3. Fintech 3.0 (2009-now) -

Following the crisis, trust in banks declined, and regulations were changed, opening up new markets. This situation was catalyzed by the rise of smartphone adoption, which played a significant role in the fintech 3.0 generation. This is because mobile devices connect consumers to various financial services. This is also an exciting time for startups. Even established banks are beginning to undergo digital transformation.

To support this, open banking technology emerged. It allowed third parties to access financial data via special channels owned by banks. The Banking as a Service (BaaS) platform made it easy for banks and other financial institutions to break away from complex systems and launch digital banks.

4. Fintech 3.5

The previous fintech era was dominated by western countries, particularly the United States and Europe. However, as the fintech 3.5 era began, its user base grew. China, India, and Singapore have become the most active users of fintech. One of the reasons was that they were adopting new solutions faster than Western people. Besides, the governments have adapted their policies and regulations to encourage the development of fintech companies. At the end of the day, efficient financial markets will lead to a rise in economic growth.

Fintech and Open Finance

Another feature of fintech 3.5 is the emergence of open finance. This technology allows users to share their financial information, which is not only limited to banking information. This is an "upgrade" of open banking.

Ayoconnect's open API, for instance, enables fintech companies to easily provide more services with open finance support personal finance. On the other hand, customers also don't have to worry about data security issues because they can choose which information to share. Ayoconnect's Open API also enables service providers to collaborate and innovate to create mutually beneficial solutions for businesses and consumers.

Open finance is the product of fintech, which had undergone a long journey before evolving into what it is today. As an "upgrade" of open banking, open finance allows companies to tailor their products and services according to their customers' needs. All of this is possible thanks to the never-ending fintech development.

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