Insight: Is Open Banking the panacea for personal finance issues?

09 Dec 2019

Open Banking Expo Magazine caught up with Lubaina Manji, Senior Programme Manager, at Nesta Challenges to run through her thinking on the latest Open Up Challenge 2020.

In the last ten years, personal finance has changed dramatically. Money has become a virtual concept and harder to track, savings rates have remained extremely low, and spending has become even easier. Indeed, our research from earlier this year found that nearly 15.2 million people in the UK regularly run out of money each month and 48% of them would like new tools and apps to help them manage their money[1].

The banking sector has traditionally held all the power here, but thanks to Open Banking, new fintech entrants are shaking up the market and creating real value for users.

Open Banking has huge potential and has long been hailed as the solution to help people make more of their money. That’s why, in partnership with Open Banking Limited, Nesta Challenges is currently running the Open Up 2020 Challenge to unlock the power of open banking for people across the country.

15 finalists for Open Up 2020 were selected in November, winning funding as well as non-financial support to accelerate their growth. But how exactly are these fintechs using open banking and how can this change our relationship with money?

Budgeting and saving

With 766 million contactless cards in the UK[2] spending has become easier than ever and numerous studies have shown we are losing our savings mindset.

Fintechs are giving consumers new and clearer visibility of their finances. Platforms like Moneyhub provide insights across multiple accounts; by categorising data and showing where savings can be made, users can set budgets and increase their financial wellbeing. Cleo and Plum take this a step further, using chat bots to make money management easy and, some may even say, fun.

The real winner is linking saving with everyday spending so that it becomes something that people don’t even need to think about. Plum identifies and automates affordable saving, whilst Moneybox and Sustainably round up daily spending. With Moneybox, these micro-savings can then be invested, encouraging a much-needed savings habit. In the case of Sustainably, retail transactions that are rounded up are donated to charity, helping people to do good as part of their everyday lives.

Disrupting the market

While Open Banking has sparked competition in the financial services market by providing better customer experience, easier access and cheaper deals in the more traditional products like credit and savings, some fintechs are also disrupting this sector completely by thinking of entirely new ways to do this.

In property, Mojo Mortgages and Canopy have streamlined applications for a rental property or mortgage by reducing the volume of questions and paperwork to evidence affordability. Mojo Mortgages establish mortgage affordability within minutes and provide people with personalised, tailored advice to help them get ‘mortgage ready’. In the ever-growing rental market, Canopy takes stress out of moving for renters by including the option for “deposit-free insurance”, as we know that having to find a lump sum for a rental deposit can take months and months to store away.

Disrupting the loan market, Creditspring and Updraft remove financial stress when it comes to borrowing. Creditspring offers short term loans through a membership subscription rather than charging traditional interest rates, while Updraft targets millennial users to clear their overdrafts, avoiding expensive interest and fees by offering lower rates. Both enable users to build their credit scores through loans with affordable repayments, rather than risking destroying them through payments people couldn’t possibly achieve.

Meanwhile, in travel, Currensea has developed a travel debit card that links to your existing bank account. This saves people having to take out a specific account just to avoid fees for spending abroad and saves someone up to 80% when travelling compared to if they used their high street bank’s card.

Help for those that need it most

Fintechs are also using open banking to address the unmet financial needs of those who fall outside of traditional banking structures; those who face financial stress, are vulnerable to fraud, trapped in a cycle of debt or make up the estimated 4.7 million gig workers in the UK[3].

New methods of avoiding expensive debt penalties are emerging. From Tully, a digital debt adviser helping prioritise debt repayments, to Wagestream giving early access to earned wages which helps people save, be more financially resilient, and avoid turning to high-cost, short-term loans.

Another finalist, Portify, targets modern workers with unconventional earning patterns who struggle with paying their bills or keeping on top of their finances as a result of how they get paid. Using open banking to analyse behaviours, Portify prevents overdraft and interest payments and gives access to small interest free loans.

Older and vulnerable people – for example those with cognitive impairments such as mental health problems – often need increased support with money management. Open Banking helps lower the risk of vulnerable people being taken advantage of if they need a carer or relative to help them manage their money as there is no need to share full financial credentials. Kalgera and Toucan enable users to share spending alerts with a trusted family member or carer and, by using machine learning, they analyse spending habits to spot financial vulnerability and reduce the risk of fraud.

The potential

Many of these fintechs are already improving the everyday lives of people across the UK, but they have the potential to reach even more and that’s what we hope to help them with through the Open Up 2020 Challenge. From an existing collective consumer base of close to 6 million, these 15 companies hope to reach 13.5 million across the UK by the end of 2020.

Open Banking is an enabler to help us all live a better financial life – from cradle to grave – and this is just the beginning. Maybe it’s overly optimistic, but could open banking be the panacea for getting our personal finances in order? By giving people control over their data and using it for their benefit it seems possible these innovations could genuinely transform how we all manage our money.