Inclusive data ecosystems and the role of open finance

The report highlights that low-income individuals in emerging markets are increasingly being digitally included, with around two billion people now having digital data trails. However, one-third remain financially excluded. Open finance, through consent-based data sharing, can help address this issue by reducing information asymmetry and offering more competitive financial services. Inclusive data ecosystems are necessary for this to work, with essential components such as digital IDs and the digitisation of government services.

Advancing inclusion through open finance: key opportunities

Open finance creates new opportunities for financial inclusion by tackling two core issues: information asymmetry and the lack of consumer data. This is achieved through standardised data sharing, reducing costs for financial service providers and allowing for more tailored products. The report underscores that open finance enhances customer experience by giving consumers control over their financial data. This control can improve personal financial management and help customers make more informed decisions. In Brazil, for example, over 27 million accounts have been connected through open finance systems since its introduction in 2021.

Building blocks supporting inclusive open finance

The report identifies three key building blocks essential for the success of open finance: digital accounts, fast digital payments, and a diversity of financial providers.

Digital accounts provide an entry point into the formal financial system. They enable consumers to access a range of financial services and build digital data trails that are invaluable for designing and delivering better financial products. For example, Brazil’s digital account policy led to 84% of adults having bank accounts by 2021, and India’s Pradhan Mantri Jan Dhan Yojana initiative opened over 500 million basic savings accounts.

Fast digital payments are crucial for increasing the usage of digital accounts. Interoperable, low-cost digital payments mimic the convenience of cash and encourage wider adoption. Brazil’s PIX system, launched in 2020, has registered 450 million accounts, with 92% of adults using it. These payment systems generate valuable data, which financial service providers can leverage to develop customised products.

Diversity of financial providers drives competition and innovation. A range of providers, including fintechs and traditional banks, creates an environment where innovative solutions tailored to different customer segments can flourish. In Brazil, the entry of fintechs has led to significant growth, with over 1,500 startups and a $10 billion fintech lending portfolio, benefiting consumers with better products and services.

These building blocks, when supported by appropriate policy and regulatory frameworks, lower barriers to entry and acquisition costs, fostering an inclusive financial ecosystem.

Assessing market readiness for open finance

Not all markets are prepared to implement open finance. The report suggests that strengthening existing ecosystems, such as digital public infrastructure and competition policies, is essential before rolling out open finance initiatives. Tools like CGAP’s Open Finance Self-Assessment Tool can help policymakers evaluate their country’s readiness. Bangladesh, Kenya, and the Philippines are highlighted as emerging markets with varying levels of readiness. For instance, Bangladesh benefits from a strong microfinance sector and digital government payments, but lacks interoperable digital payment platforms.

Conclusion

The report concludes that while open finance holds immense potential to drive financial inclusion, its success hinges on several factors. These include a strong regulatory framework, consumer trust, and the effective implementation of key building blocks such as digital accounts and fast payments. Countries like Brazil and India demonstrate that early investments in digital infrastructure can create favourable conditions for open finance to thrive. However, the report emphasises that policymakers must ensure inclusivity by setting clear goals and metrics for reaching underserved populations. Failure to do so risks exacerbating existing financial disparities.