Harnessing Open Banking for financial empowerment

Rising inflation rates, debt, and geopolitical tensions are causing increased stress at all levels of society, as all consumers are finding themselves paying more for necessities and day-to-day items. Even individuals with savings and nest eggs will find themselves having to rely on assets that are steadily depreciating. 

The lasting impacts of the pandemic are also evident with financial inclusion being a concern for almost half (45%) of UK residents interviewed by Deloitte in 2021, stating that their financial well being has deteriorated due to the global effects of COVID-19. With research by N26 bank suggesting that money stress is now close to the same stress levels as divorce, financial inclusion and empowerment are vital aspects of our day-to-day lives.

The fintech industry plays an integral role in providing financial empowerment tools, as they are often easier to access through digital means, are more convenient and quick to use, and provide cheaper deals to customers. Fintech solutions, while helpful to customers, are extremely expensive to develop and rely on high-cost technologies. 

State of the current financial inclusion system

While great improvements have been made when it comes to financial inclusion regarding access to bank accounts, financial literacy is still a concern across Europe. Customers with lower financial knowledge are more likely to fall into poor financial habits, such as spending more, taking out unaffordable loans, or racking up fees and fines, all resulting in significantly lower projected amounts of wealth. 

Access to technology and user-friendly financial applications is the most straightforward way for consumers to understand their own finances and learn to manage them. Tailored solutions that are based on their specific financial situations would be the most helpful in the long-term, helping users take control of their money and gain access to vital resources through technology. Fintechs that fail to utilise customer data are not able to provide the same levels of personalisation and cannot provide tailored solutions to fit specific customer needs. 

Open Banking as the next level of innovation

Every individual should be able to access helpful money management tools, improve their financial standing and feel in control of their finances. Financial inclusion does just that, giving consumers access to timely, available, and affordable services, offering equal opportunities. The ultimate goal for consumers across the board is to take control of their finances and to be financially empowered. 

While fintech companies are already creating helpful financial solutions for customers around the world, Open Banking is the key to enhancing the whole experience through the use of tailored solutions and personalised approaches that are a result of direct access and analysis of financial data.  

Fintechs when combining their efforts with Open Banking can help users save money and overcome monetary setbacks through access to digital options that offer low-fee or no-fee solutions, provide quick monetary assistance to avoid overdrafts, and supply them with more tailored aid based on their specific needs. 

Open Banking not only gives power and control to the consumer but also brings with it many opportunities within the financial market and other industries. It can seamlessly help fintech companies simplify and automate many processes, including identity verification, account aggregation, personal financial management tools, lending services, credit reporting, and much more, allowing them to work quickly and not rely on manual tasks and input. 

Customer-focused financial empowerment 

Open Banking is the ultimate tool for taking control of finances by allowing customers to access monetary assistance, schedule payment relief, lower fees for necessities, and guide them through debt rehabilitation and income gaps. Access to Open Banking can significantly improve financial standing and the quality of life for many during challenging financial times, as well as help to stabilise finances for people affected by inflation and economical changes. 

There are a variety of existing Open Banking use cases that have set out to change the world and aid customers with taking control of their finances. For one, Open Banking has facilitated the creation of digital debt advisors, such as Tully, which can help users struggling with paying bills and loan repayments through direct access to their bank accounts. Experts can analyse spending habits and available income to create budgets and plans for overdue payments. Users that are unable to cover costs for their services and loans, can have payment relief plans created for them with their chosen provider.

Users who feel more financially empowered through personal finance management can benefit from the Snoop app, a budgeting tool that not only allows customers to track spending, but also receive analysis concerning energy, mobile and broadband bills, insurance costs, and mortgage payments. If the AI embedded in the tool spots a better deal for the customer, they suggest a switch for lower payments. 

In addition to this, Snoop prepares weekly reports regarding regular bills and sends them to users every Sunday to help them prepare for the week ahead. Using bank account data, the application also collects money-saving ideas from the internet to share with their customers about their day-to-day spending, such as sales and discount codes for places the user typically shops at, along with general budgeting strategies. 

Open Banking facilitates quicker and more accurate credit checks which lead to real-time decisions and opportunities for people to access the needed money in a way that is much faster than the alternatives. While inflation typically sees many traditional lenders raising their prices due to increased demand, Open Banking-powered fintech solutions offer lower or zero interest rates, giving consumers more freedom and eliminating limits put on them by banks and traditional lenders. 

Creditspring is an option in this category, offering short-term, interest-free loans to quickly assist those with little to no savings or persistent debt to cope with unexpected expenses. For customers at risk of overdrafts, Updraft can help by connecting directly to bank accounts and sending automated alerts when the client is about to overspend. If the overdraft does occur, Updraft will protect users from high-cost overdraft fees from the bank by stepping in with an automatic low-interest loan. 

Open Banking-powered loans are also the best solution for individuals with limited credit histories or near-prime borrowers. Detailed data that can be obtained through Open Banking allows creditors to calculate more accurate credit scores for individuals in these groups, differentiating between people who are likely to make repayments and those who are not. Not only does it allow for individual plans to be created, but also provides an opportunity to customers who would otherwise be rejected by traditional institutions. 

Final thoughts

Fintechs benefit from embracing Open Banking as part of their business model, creating personalised solutions that are powered by customer data and tailoring their approaches based on the needs of the client. In terms of internal processes, Open Banking significantly improves automation and helps make quick decisions. 

Using services such as personal finance management tools and digital debt advisors helps people within any demographic group gain more control over their money and stay afloat even during difficult economic times. With more fintechs applying Open Banking, more solutions will appear to continue helping stabilise and resuscitate financial situations and increase financial literacy.

About Rolands Mesters

Rolands Mesters is the CEO and co-founder of Nordigen, the only freemium Open Banking API that connects to more than 2,300 banks. Rolands is a sales and growth hacker who is passionate about fintech and alternative lending. Rolands has been featured in the Forbes Latvia 30 Under 30 list as well as being featured in TechCrunch, Sifted, Fintech Futures. Rolands regularly shares fintech insights and analysis on Open Banking at international fintech events and is considered one of the foremost experts on Open Banking worldwide.

About Nordigen

Nordigen is the first free European Open Banking API that provides regulated connections to major European banks. To date, Nordigen provides the largest network of connections with 2,300 banks.