FIDA : The Path from Open Banking to Open Finance

From PSD2 to FIDA : The next evolutionary step in the European financial data space

With the PSD2 directive, Europe laid the foundation for open banking a few years ago. For the first time, customers could securely share their payment account data with third-party providers to use new services such as multi-banking apps or alternative payment services. But the financial world is far from being just about current accounts.

With the planned Framework for Financial Data Access ( FIDA ), the European Union is now going significantly further: Open Banking is becoming Open Finance . The goal is a cross-sectoral legal framework that enables the exchange of financial data desired by customers across virtually all relevant financial products.

For banks, insurance companies, asset managers, FinTechs and other market participants, this means a profound change – regulatory, technological and strategic.

What is FIDA ?

FIDA is a legislative proposal from the European Commission, published in June 2023. The project aims to create a uniform framework across Europe so that consumers can share their financial data with authorized third-party providers in a controlled and standardized manner.

At its core, FIDA pursues three central goals:

• More control for customers over their financial data: Financial data may only be shared with the customer's explicit consent - the customer retains full control.

• Promoting cross-sector innovation and competition: Unlike PSD2, FIDA encompasses the entire financial sector – banks, insurance companies, securities firms, pension funds, and much more. The personal financial picture becomes more complete, and the benefits significantly greater.

• Standardization and compensation of data access: Uniform technical standards and APIs are intended to ensure interoperability between all market participants. The costs for provision and use will be distributed fairly.

While PSD2 addressed payment accounts, FIDA extends data access to almost the entire spectrum of personal financial products.

The leap from Open Banking to Open Finance

Perhaps the most significant change brought about by FIDA is the massive expansion of the data-sharing principle. Here is a list of the financial data that will fall under the regulation:

This creates, for the first time, the basis for a holistic view of the financial situation of private and business customers (especially self-employed individuals and SMEs ).

FISPs: New players in the open finance ecosystem

The right to use the data is subject to specific requirements. FIDA is introducing a new regulated service provider category: Financial Information Service Providers (FISPs) . These providers are permitted, with the explicit consent of their clients, to retrieve, consolidate, and process financial data from various sources.

Possible roles of FISPs:

• Financial overview platforms

• Digital wealth advisors

• Creditworthiness analyses

• Insurance comparison platforms

• Personalized financial planning services

This creates a new market role for FIDA , comparable to the Third Party Providers (TPP) with Account Information Services (AIS) from PSD2 , but with a significantly larger data spectrum.

The compensation model: A key difference to PSD2

One important change concerns the economic structure of data access. While PSD2 mandated free access to payment account data, FIDA provides for appropriate compensation for data holders.

The logic behind this is that providing financial data via standardized interfaces incurs costs – for infrastructure, security, and compliance. FIDA recognizes this and allows data owners to demand fair compensation from FISPs. The exact terms are defined within industry-leading data exchange schemes.

This model is intended to create a sustainable incentive for all market participants and to ensure the quality of the data provided.

Schemes and Standards: Why Interoperability is Becoming Crucial

FIDA relies on market-driven "Financial Data Sharing Schemes".

These industry-specific or cross-sector models are intended to define standards for:

• APIs / Interface Specifications

• Data formats and semantic standards

• Safety requirements

• Consent-Management

• Governance rules

The schemes are developed by the members of the respective industry segments themselves, but must meet minimum regulatory requirements. Financial institutions and FISPs are required to join at least one approved scheme. This approach aims to combine flexibility with standardization and accelerate practical implementation. And the fact that all market participants are at the table will ensure that everyone's interests are taken into account. Only in this way can FIDA succeed.

Key Use Cases of FIDA

FIDA 's potential lies less in the regulation itself than in the resulting use cases. Some examples:

• Aggregated financial dashboards : A single overview of all accounts, portfolios, insurance policies and loans – across all institutions.

• Personalized financial advice : Better advisory tools and tailored recommendations based on complete financial profiles.

• Improved creditworthiness check : More holistic credit rating based on broader financial data.

• Insurance comparison : Automated comparison of existing contracts with market offers based on real contract data, as well as more individualized policies.

• Asset management : Holistic portfolio analysis across various asset classes and providers

• Retirement planning : A consolidated overview of all retirement products for better retirement planning.

Unlike PSD2 Open Banking, where customers can also take active steps (e.g., initiate a payment), FIDA initially limits itself to retrieving data. At launch, it will therefore not be possible to purchase financial products or cancel insurance contracts via FIDA or Open Finance interfaces.

Schedule: When will FIDA be released ?

The FIDA proposal was first published by the European Commission in 2023. Finalization of the regulation is expected around 2026-2027. Based on this, an implementation period and start of application can be assumed to be around 2027-2030. The exact timeline depends on the progress of the trilogue negotiations between the Commission, Parliament, and Council.