As we start to emerge from the Covid-19 pandemic, many consumers will be able to devote more time to their financial wellbeing.
In the economy, the signs are good. The Bank of England is signalling the biggest economic bounceback since World War II, while it has been reported that households have amassed £160 billion of bank savings, which is likely to fuel consumer spending.
Meanwhile, the trend for accessing bank and investment accounts digitally means that simple and secure online financial tools have never been more important in helping people make more informed financial decisions in the post-pandemic recovery.
With the arrival of Open Banking in 2018 came the use of application programming interfaces (APIs), allowing consumers’ permissioned data to be shared more securely with other services. However, we are not at a point where Open Banking is universal, meaning that many applications still heavily rely on secure information captured by trusted aggregators.
Seeing the potential
Whether they know it or not, nearly 2.5 million people use Open Banking-enabled products to manage their finances, access credit and make payments, according to recent figures from the Open Banking Implementation Entity.
However, until it becomes more widespread, the potential for improved operational savings and greater insight into consumer use cases will not be realised. Greater uptake will lead to even more innovation.
The need for an open finance ecosystem is pressing. More data from consumers will lead to better choices about their finances.
But until more financial institutions and technology providers invest in an API-based system – beyond those that are mandated to by regulation – consumers will not see the full benefits. It is in those companies’ interests: those that move early could enjoy significant advantages over their competitors.
However, for Open Banking to be truly considered a success, all the businesses that underpin it – financial institutions, fintechs, data aggregators and regulators – need to work together.
Financial institutions beyond the big banks that implement APIs will be giving their customers more power over what and how their data is shared. Not only will this improve data security, it also has the potential to build greater consumer trust.
With greater adoption of API technology across financial services, consumers are far more likely to place their trust in the process and build their resilience with greater connectivity and better understanding through financial apps.
Making it personal
The rise of financial technology applications shows the appetite from consumers for more personalised digital experiences with their finances. Institutions must be able to keep up.
Being able to offer a personal insight on financial decisions, such as finding the best mortgage rate or investment, builds trust and helps to improve financial wellbeing. These institutions are in a unique position to be able to build secure, effective and reliable systems that will attract consumers on competing platforms who are worried about the security of their information.
When financial institutions are able to offer more sophisticated insights, consumers can make better decisions with their money.
For example, personal finance app Fintify helps its users to link and monitor across multiple bank accounts, credit cards, investments, pensions and insurance. Using a combination of Open Banking and direct API access, consumers can track investments, categorise everyday spending and budgeting and get insights into their insurance and loan portfolios. This 360 degree view and access to all account types, provides users with access to other markets around the world.
As society emerges from the pandemic and as hard-hit areas of the economy seek to take advantage of a broad-based recovery, this type of information will only become more valuable – underscoring the financial, personal and collective impact of Open Banking.
Written by Jason O’Shaughnessy, head of international business at Envestnet | Yodlee