Rolands Mesters, CEO and co-founder of Nordigen, shares his perspective on Open Banking monetisation, financial inclusion, how it can serve SMEs, and improve PFM.
With Open Banking, fintechs can analyse customer data and identify specific spending habits or frequent expenses. They can use those insights to target clients with tailored offerings, such as premium budgeting tools and partnering financial platforms that are embedded within their own systems to monetise data.
Account aggregation alone might not be a killer feature in the modern world but pairing it with other value-adding customer services can be a source of new revenue. EY’s most recent fintech trend survey found that globally the current rate of fintech adoption is 64%, with consumer awareness reaching 96%. With fintech services on the rise, there are more options and product offerings for customers to choose from. Clients are opening multiple accounts with different financial providers to meet all of their diverse needs. However, with a larger number of accounts, the task of managing them all can become bothersome. Account aggregation allows users to connect all their accounts to one platform to stay on top of their finances. This is an important feature for clients, with 79% of consumers surveyed by CitiBank preferring to view their financial data in a single app.
Open Banking is a vital tool for financial inclusion. There are still many unbanked and underbanked individuals throughout the world, regardless of the progress in technological innovation. According to Mambu, Europe alone holds up to 40 million unbanked people. These individuals either do not have a bank account or prefer to use alternative financial services, due to flexibility, accessibility, and lower fees. Open Banking removes some of the limitations that are placed on these groups, by facilitating their access to financial services and products.
Open Banking allows the underserved to be considered for financial services through payment and alternative data. Securing loans is challenging for them due to the lack of traditional credit data that is typically required for creditworthiness checks. With Open Banking, other information may be used instead to verify the reliability, such as consistent, timely utility or mobile phone payments. Furthermore, data gathered can be used to offer the client a more personalised service that will meet their specific needs and fit within their lifestyle.
Individuals that are struggling with budgeting and repayments may also benefit from data-backed personal financial management applications, which can be easily accessed through digital devices and enable users to have a clear view of their spending in one place to fully take control of their finances.
Statistics gathered across the EU suggest that approximately half of the population lacks sufficient knowledge regarding basic financial concepts, and could benefit from money management assistance. Instead of consulting budgeting experts, or seeking expensive financial advice, consumers are now able to refresh their knowledge, create budgets, manage their money, and overcome debt through personal finance management (PFM) applications. Customers can use their PFMs to connect several bank accounts and gain insights into their spending using Open Banking and AI tools.
PFMs are consistently evolving, with new variations now including tailored tips and advice, financial literacy courses, automated subscription management services, automatic savings features, and self-investment options. As these tools continue to develop, with the transition to Open Finance, customers are likely to see increasingly better offerings in new areas including insurance, pensions, and loyalty programmes.
What we want is to be able to put our finances on autopilot. We are gradually getting there, but not fast enough.
Open Banking is incredibly helpful for growing businesses, with the most recent report by OBIE highlighting that 77% of SME respondents using the technology now have more immediate and precise knowledge of their financial situation following integration. In addition to superior accounting services, SMEs can also benefit from easier payments with lower fees and enhanced client onboarding.
SMEs have long been underserved by traditional banks due to the way that traditional lending is conducted. Many SMEs currently face a funding vacuum, largely due to higher perceived risk and less attention from investors. Through Open Banking, banks will be able to more precisely assess risk levels and lend to more enterprises, using real-time data based on current financial information and present-day business operations. Additionally, analytics enabled by Open Banking will be significantly more advanced than before. SMEs can receive consistent, instant data-driven feedback on their performance within their market sector by using APIs.
Overall, Open Banking is one of the best tools for SMEs as it facilitates access to more efficient services, gives them additional opportunities to thrive and build, as well as simplifies and automates otherwise time-consuming and labour-intensive procedures.
This interview has first been published in the Open Banking Report 2022. Click here to download the report.
Nordigen is a freemium open banking platform that provides free access to open banking data and premium data insights. Nordigen's free API connects to more than 2,300 banks in Europe and serves fintech companies and developers in 31 European countries, including the UJ.
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