Thanks to open banking, fintech early adopters likely already have accounts that round up transactions to boost savings or connect to third-party tools for loan applications, budget management and more. But the new wave of fintech startups are proving there’s much more that can be done using open banking, the two-year-old mandate from UK regulators that required banks to easily allow their customers to share their data with third parties such as apps.
“Open banking offers people the chance to get personalised, tailored support to help them manage their money by allowing regulated companies to securely analyse their bank data,” says Lubaina Manji, senior programme manager at Nesta Challenges, one of the organisations behind the Open Up 2020 Challenge, alongside the Open Banking Implementation Entity (OBIE). “It’s enabled the creation of new services and tools to help people with every aspect of money management – from budgeting to investing, and much, much more, all in a safe and secure way.”
And some of the innovations from finalists in the Open Up 2020 Challenge have surprised with their ingenuity and customer focus, she says, citing Sustainably’s round-up tool for automated charity donations, and Kalgera’s neuroscience-informed AI to help spot fraud targeting people with dementia – two projects that highlight the purpose-driven idea behind open banking and the aim to get financial support to show who need it the most. “This shows just how much potential open banking has to let us choose solutions that work for each of us and transform every aspect of our financial lives,” Manji adds.
Boosting personal savings is one way that open banking apps are helping people, applying machine learning to personal finance. Plum is one example, analysing transactions to decide how much money to set aside in savings every few days.
“We help them automate their financial life, using data to help people manage their money… and reduce possible bills,” Plum co-founder Victor Trokoudes says. “The algorithm looks at what comes into your account and what leaves your account on a monthly basis, and optimises how much you should save based on that.”
Plum’s data suggests an average person will save £1,000 more each year using the app than they were before. That’s possible because open banking lets Plum pull in personalised data for each and every user – after all, everyone’s financial circumstances are different, so no savings plan will suit everyone. “We wanted to build something intelligent that was tailored to each individual’s income level and spending path,” Trokoudes says.
That personalisation and flexibility came into its own during the Covid-19 lockdown, as some people spent less and – assuming they held on to their job or were furloughed – maintained some income. Plum’s flexible algorithm understood the shift. “We’ve seen savings dramatically increase,” Trokoudes says. “Which is exactly what should be happening.”
This was possible in a limited way before open banking, via tools that could scrape user data from their accounts. However, that required a user to login to a platform and let the app collect the data. “That was very unstable,” says Trokoudes. “It was a bit complicated – open banking has really streamlined it, with better quality data.”
That’s true for other financial challenges, including credit and loans. For example, Creditspring offers interest-free short-term loans to help with unexpected expenses, while Canopy created tools to help renters improve their credit score by proving they paid on time and to let renters access their deposit during the pandemic to help prevent those with reduced incomes turning to high cost credit.
The largest loan most of us will face is a home mortgage. Mojo Mortgages analyses your spending to create a MortgageScore, which explains what you need to change to qualify for a mortgage, and then helps you find the right deal when the time comes. “We try and put the customer into a position whereby they can really see how a lender sees them,” says co-founder and CEO Richard Hayes. “Credit scores are actually quite a small part of it now and it’s really more focused on behaviour and affordability.”
With this data, users can understand how their spending patterns impact their chances of getting a mortgage, giving them more confidence as well as a better understanding of the loan process. That wouldn’t have been possible without open banking, he adds. “We’re using open banking to give both the customer and the adviser greater understanding and insight,” Hayes says.
New ways of banking are also being developed to serve the many new ways of working, whit more people working freelance than ever before – 4.8 million Brits were self-employed in 2017, up by a from 2001, according to the Office of National Statistics.
Portify is designed for people with unconventional earnings patterns, analysing income and spending to help users avoid turning to overdrafts to fill cash-flow gaps. “When you’re self-employed… you don’t have a consistent earnings pattern or credit history,” says co-founder Sho Sugihara. “It makes it really hard to get access to financial products using traditional credit scores.”
To address that, Portify uses open banking to analyse users’ financial situations by looking at their accounts, offering a cash flow prediction tool and warnings if you’re unlikely to have enough to pay upcoming bills. Alongside that, Portify offers a built-in alternative to overdrafts and payday loans via a revolving line of credit. “If the app shows that seven days from now you’re not going to be able to quite afford your electricity bill, then we will fund that and provide you with a zero-per-cent interest credit line which you pay back over the next 60 days,” Sugihara says, adding that these short loans are also used to help build a positive credit score.
Traditional credit agencies rely on outdated, static signals to assess a person’s financial situation, leaving people with more complex personal circumstances out in the cold. “They’re often quite an unfair picture of where your real financial status is,” Sugihara says. “We realised if we could tap into open banking – with the users’ consent – we could… not only in real time assess their financial worthiness, but also offer them other beneficial features. It’s a win-win for everyone.”
Encouraging more innovation in fintech is exactly why Nesta Challenges is running the Open Up 2020 Challenge, to support finalists such as Portify, Mojo Mortgages, Plum and the rest as they drive necessary change in the industry. “The financial services sector has been slow to respond to society’s evolving needs, whether it’s better serving the UK’s renters, fraud prevention for the vulnerable, or helping those with an unpredictable income manage their finances and get a mortgage,” says Manji. “The Open Up 2020 finalists are addressing these issues – and more – using open banking to make it easy for people to overcome some of the real-life issues they are dealing with every day.”
The winners of this year’s challenge will be announced in October. To find out which app could help you manage your finances, visit the Open Up 2020 Challenge website. If you have an idea for a fintech or a startup already solving a problem, head to Nesta Challenges to find out what’s next