EXCLUSIVE: The fintechs using open banking to improve financial wellbeing

For the everyday consumer in the UK and around the world, the cost of living is unignorable.

For some it’s an irritating niggle, and for others, a serious threat to their overall wellbeing. The cost of everyday goods and services have been rising in line with inflation for the past couple of years and although the latest statistics from the ONS show it may be easing, it is still out of control.

The fintech sector could offer some help. Here, we look at some of the companies who are driven to make a genuine difference to their customers’ lives, aided by the increased access to consumer financial and transactional data, otherwise known as Open Banking.

It’s a sticky situation

Concerns about the cost of living have been rising for some years in the wake of multiple world altering events. Latest figures from the ONS reflect an everyday reality for millions of people in the UK. Inflation eased slightly in June 2023 but at 7.3% is still high. During 2022 the price of consumer goods and services rose at the fastest rate in four decades whilst household disposable income fell by 4.3%, the biggest fall in living standards since the 1950s.

4 in 10 adults (38%) are finding it very or somewhat difficult to afford to pay their rent or mortgage and 51% of people are using less gas or electricity because of the rising cost.

Statistics show that 60% of adults said their cost of living had risen in the past month and the age group most financially vulnerable was those between 25 and 34. That’s working aged people at the intersection between Gen Z and Millennial. Both are affected by this. The issues carry over to Europe where according to Bunq, 86% of young Europeans cut their spending over the winter.

Not only this but as many as 24 million adults don’t feel confident managing their money and according to a 2021 financial literacy test from Freetrade, the number of Brits who aren’t up to scratch on financial literacy was 88%.

Clearly this suggests people aren’t in the best position to deal with the challenges of the current economic climate and with an education syllabus often criticised for its lack of financial education, the slack needs to be picked up elsewhere.

That’s where fintech can come in.

The disruptors taking on financial wellbeing

Plenty of fintech products and neobanks have recognised the need to assist with financial wellbeing and literacy, with many offering spending trackers and budgeting tools as a value add. But some apps appear to have it as a central focus.

We spoke to the second largest European neobank, Bunq, who have a clear focus on sustainability but also acknowledged the trend of “young Europeans being harshly affected by the cost-of-living crisis”, having made a concerted effort to “do whatever we can to make our users’ lives easy.”

“Most of our users are taking active steps to regain control over their finances: either by diligently budgeting or by paying better attention to large or impulsive purchases. We help them to do that more efficiently by introducing completely automated tools that let them budget with zero effort, plan their finances and never overspend as well as high yield savings accounts.”

Retail investment apps have become very popular in recent years by offering easy access to a service once reserved for more institutional investors and people in the know. One criticism however has been that they don’t necessarily equip the user to make fruitful decisions. UK based app Moneybox and similar platforms like Nutmeg attempt to make investing more inclusive and could help users make good long-term decisions with their money, tackling the lack of education around this topic in a fragmented and often confusing wealth management industry.

Automated tools from apps like Qapital and Plum allow you to set and forget savings rules as well as get a handle on loans and debt. Effectively saving money and reducing debt is key to stability and wellbeing around finances in the short and long term, so tools like this could genuinely be a game changer.

As far as improving financial literacy is concerned, apps like Zogo and Juno, which both compare themselves to Duolingo, are helping to educate young people and other demographics on money and investing. Zogo offering is particularly exciting as they offer an API for other banking platforms to embed their tools and add an educational feature in front of the customer.

Happy Money are a company that may not initially appear to be offering solutions to long term financial wellbeing, but nonetheless position themselves as a helpful step on that journey. They provide loans, but they do it differently. Offering low rates, a simple lending process and community-focused lending partners, they’re aiming to give people a leg up and help them pay off debt and get to where they want to be. Scepticism about the true benefit to consumers would be justified but it could also be an innovative solution to a problem faced by many.

Away from budgeting and saving we also came across an interesting disruptor in the insurance space called Laka. They currently have a niche specialism in bicycle insurance, but could certainly be used elsewhere. Their idea of creating community insurance pools where costs are shared after a claim rather than charging upfront premiums may become more and more appealing as regulatory changes in open access data also begin to affect the insurance sector.

Open Banking at the heart

Without Open Banking, much of this technology and these products wouldn’t be possible. The consumer being able to see a broader picture of their money, is enabled by regulatory changes that have revolutionised banking and opened up the playing field to new players who can offer unique services that get to the heart of people’s needs.

Those needs are currently dominated by the cost-of-living crisis so it’s heartening to see that there are many services dedicated to helping those individuals.

Of course, not everyone is on board with the idea of their data being shared so widely, even if it does have the potential to benefit consumers. Bunq were keen to point out that to them “privacy is sacred, which is why we never sell or rent users’ data to third parties without their explicit consent.”

Ultimately, customer privacy is always going to be a greater concern than potential benefits, but they did say “At the same time, data insights can be a great tool to push conversations, services and innovation forward.”

The personal finance management apps mentioned above gather an individual’s accounts from across the banking spectrum, to provide clearer insights about income and spending. Other benefits of this development include the ability to access more affordable credit when open banking data is used as part of the assessment process, increasing the chances of receiving approval, after more accurately evaluating what they can afford to repay.

Not only this but the competition between providers that Open Banking promotes can lead to better products and lower costs, which in and of itself is good news for cash strapped consumers.

Another factor that impacts all of this in the UK is the newly enforced FCA Consumer Duty which brings into force a whole new set of reforms for UK fintechs. Whilst presenting some challenges for them, the deep personalisation that it requires will ultimately put the consumer first.

Nikhil Lavanian, VP of Risk and Compliance at AI transaction intelligence platform Bud Financial pointed out that whilst banks can use transactional data to offer better financial management tools, they would need AI tools to distil this data into rich insights. “Data intelligence solutions, using first party or open banking customer data in combination with transaction AI, can help meet some of these [FCA driven] obligations, and drive both compliance, and valuable business outcomes. With the right technology, institutions can drastically improve consumers’ financial wellbeing.”

There’s a great deal of promise and there’s no doubt that customers being able to see their financial situation more clearly could improve their financial wellbeing.