Open Banking is a secure way of giving providers access to consumer financial information. The initiative is designed to help financial institutions offer their consumers a clearer view of their finances, enable them to make quick, easy and direct payments and shop around for the best available services on the market.
A report put together by the Independent Consumer and Small Business Representatives for the Open Banking Implementation Entity (OBIE) revealed that, when properly implemented, open banking could realise £18 billion in value for British people and small businesses over the course of a year. That’s £12 billion for consumers and an additional £6 billion in value for small businesses.
“Consumers are desperate for services which make their lives easier and happier. Open Banking offers a golden opportunity to reimagine consumers’ relationship with financial services.” — Faith Reynolds, an Independent Consumer Representative
4 Types of Consumers and Their Financial Priorities
The report takes a close look at what the UK consumers presently have, what they need and what tools and services are currently lacking. The report outlines 4 types of UK consumers, ranked by their financial health: 17% are specified as being “on the margins”, 18% are considered “overstretched”, with 20% defined as ”aspiring” and 45% classified as “asset rich”.
While the representatives of each segment have their own pain points when it comes to their relationship with money, the report stresses that open banking can be hugely beneficial to all financial groups. Here’s how much money open banking could end up saving each of these groups (and how):
17% On the margins (not resilient and not borrowing)
The 17% of consumers on the margins of financial services are typically younger consumers who tend to rent. Their income is typically below £15,000 per year and a large minority have no professional qualifications.
How open banking can help: open banking powered services can help marginalised consumers access digital identity documents for opening bank accounts, as well as use pre-paid options for making more affordable online purchases.
Once this segment goes digital, it can benefit from apps that help their clients understand, manage and track their spendings, view their account balance in real-time and share bills with friends. Furthermore, as the marginalised mature and build up savings, open banking could make suggestions for the most profitable disposable income uses.
Estimated savings: £72 per person, per year. 0.8% of their annual income.
18% Over-stretched (not resilient and borrowing)
The over-stretched consumer segment is more likely to be aged 25–54, employed and living at home with children. With an average of £9,000 in unsecured borrowing, they are likely to be relying on an overdraft and lack confidence in their financial education, often struggling to make ends meet.
How open banking can help: financial services using open banking could help the over-stretched maximise their income. Those in need of saving often lack the information about the options available to them. Open banking could help people manage their credit, get access to the right benefits and more affordable tariffs on bills — all to increase their disposable income. Open banking-enabled credit monitoring could help the over-stretched manage their debt and credit smarter, while budgeting control tools could assist in saving up for important life events or holidays.
Estimated savings: £287 per person, per year. 2.5% of their annual income.
20% Aspiring (resilient and borrowing)
Resilience best qualifies this segment; the aspiring 20% UK consumers are typically on medium to high incomes, yet still owe an average of £10,000 in unsecured borrowing. Like the over-stretched, the aspiring is also aged 23–54, but instead of having families, are likely to live in couples. They are confident in their financial knowledge and are frequent internet users.
How open banking can help: the aspiring can use open banking enabled services to better manage and optimise their credit. The aspiring can profit from better deals offered by their banks and financial service providers based on their account data, such as frequently paid bills, bonus programmes and special offers. Open banking adoption would ensure that credit or mortgage offers are evaluated and approved within mere minutes, furthering their economic capacity. They could also gain from savvy financial strategies, like moving savings to avoid overdrafts or micro-savings. Finally, a personal finance management app or a consultancy tool for quicker credit repayment could help them save more income towards their retirement.
Estimated savings: £266 per person, per year. 1.4% of their annual income.
45% Asset rich (resilient and not borrowing)
The asset-rich is the UK’s largest and oldest consumer segment (with 35% retired). Their comparably high level of savings — around £60,000 keeps them comfortable and in no need of borrowing. Most are without dependent children and over 50% owe their own homes.
How open banking can help: one of the biggest open banking benefits for the asset-rich lie in personalised services, such as investment and advice platforms, as well as tracking tools. This segment could also use curated news streams linked to vital information on their investments. Saving tools could help the asset-rich maximise their savings and direct the surplus towards personal goals. Ageing is likewise a factor — as this segment gets older, its representatives could benefit from open banking powered security and data sharing tools to ease access and provide protection against scams. Designating a family member to co-manage accounts, tracking account activity in real-time with the help of wearable gadgets or facial recognition and voice-activated apps would all ensure that the asset-rich make the most of their finances.
Estimated savings: £249 per person, per year. 1.5% of their annual income.
Realising the potential
Alongside outlining potential consumer benefits, the report cautions that unless the government and regulators take co-ordinated action, the consumers who could benefit most from open banking will continue missing out. If not realised, open banking could even unintentionally worsen the financial divide.
“Consumers need and deserve more from financial services than they currently get. They want more tailored services which reflect their lifestyles and simple, intuitive products that help them make sense of their lives.”— Publication of Consumer Priorities for Open Banking report
Read the full report here: https://www.openbanking.org.uk/wp-content/uploads/Consumer-Priorities-for-Open-Banking-report-June-2019.pdf.
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