The Future Is Open Finance

Put simply: the structure of finance today prevents billions of people from accessing baseline financial services and economic opportunity.

Centralized institutions are designed to serve a disproportionate percentage of the population. Consequently, the underserved masses are limited in their access to capital, credit and services. Key, but decades-old, infrastructure like SWIFT and ACH that guide the activity of financial institutions, markets and payment networks around the world are not helping those who could use it the most.

Mo Shaikh is co-founder and CEO at Aptos Labs, and Nicole Valentine, is the fintech director at the Milken Institute.

Slow, costly money movement, coupled with limited access to capital markets, holds millions of people back from financial well-being. This is exemplified by the global remittance market. According to the World Bank and the United Nations, about one in nine people globally are supported by the estimated $656 billion sent home as remittances by migrant workers. The global average cost of sending $200 of remittances is 6.5%, twice the 3% target outlined in the UN’s Sustainable Development Goals, collectively costing the world’s most vulnerable billions of dollars.

Even in regions with robust fintech ecosystems like the United States, gaps in access to banking and finance persist. According to the FDIC, 4.5% of American households still lack a bank account, which costs those roughly 5.9 million Americans roughly $230 million in fees on non-bank financial services, like check cashing and money orders. However, we have the technology to speed up and reduce the costs of global financial services, to open finance to these struggling communities and lift all boats in the process.

Leveraging open financial data is the first half of the open finance equation. Policies like open banking have cut though the financial sector’s opacity, enabling opportunities to make systemic improvements, upgrades and overhauls.

The adoption of open banking in the U.K. allowed consumers to securely share their banking data with regulated third parties operating financial apps, products and services that are faster, cheaper and more agile than traditional banks. As of February 2023, more than seven million U.K. customers are using open banking services — at the same time, brick and mortar banks are closing across the U.K.

Recognizing the value open banking can offer consumers in the U.S., Consumer Financial Protection Bureau Director Rohit Chopra said, “a shift toward open and decentralized banking can supercharge competition, improve financial products and services, and discourage junk fees,” in a statement on the bureau’s proposed rules to jumpstart open banking. As open banking has moved from academic halls into real practice, it has catalyzed the modernization fundamental to repairing or replacing financial infrastructure.

However, open finance means more than open banking; data needs to be married with new innovative technology to build financial access and inclusion. One such technology is stablecoins. As noted by the Federal Reserve, in addition to offering stability through pegging crypto transactions to real-world assets like the U.S. dollar, stablecoins are offering a real-world, low-cost, near-instant global payments solution that almost entirely circumvents legacy infrastructure. These cost advantages are already being realized in the global remittance market.

For example, stablecoin issuers like Circle have identified remittances as a key driver of stablecoin use, especially in Southeast Asia and Latin America. A shift toward stablecoins offers more than an answer to digital currency volatility; it offers evidence of a transformative shift in the global movement of money.

To realize the global potential of open financial systems and to convince both legacy financial institutions and regular people to explore them, we need to introduce networks that are secure and accessible on day one. This is where open financial protocols come in, offering innovative features that decentralize finance without sacrificing security or performance. In parallel, traditional financial institutions, credit agencies and banks are embracing open banking APIs (think: Venmo connected to banks like Wells Fargo via Plaid).

This is all to say: The tech, infrastructure and consumer interest in more accessible financial instruments, payment networks and money movement systems is there.

Open finance is the future. Blockchains are not only providing the infrastructure layer for decentralized finance (DeFi) today, they will prove to be a core driver of progress toward open finance in the decades to come. And while mobile is powering transactions in underserved communities worldwide, Web3 will be the vehicle for true financial access and independence.

But we cannot truly succeed until exclusive forces keeping financial institutions closed make way in favor of expanding value sharing, access and innovation.