Open banking can thrive in the cost of living crisis

Five million people can’t be wrong. The numbers who have embraced innovative open banking services show how much has changed. That’s five million people newly empowered to understand and manage their finances.

The figure is impressive, but it’s not enough. 

As Helen Child noted in AltFi’s recent Open Banking State of the Market Report 2022, the technology is not yet as well understood as it should be. And if it’s not understood and – crucially - trusted, then consumers won’t use it. For now, many millions more are missing out on the benefits.

In the middle of a cost-of-living crisis that matters more than ever. Open banking can provide real, practical help. This should be its moment.

Responding to a cost-of-living crisis

Imagine every household in the country having instant and total visibility into their entire financial lives, from weekly shopping to mortgages to pensions, all in one place. Imagine too, that picture being updated with every payment or repayment they made.

They wouldn’t need to go searching for savings on websites. New deals would be automatically presented to them as their spending and circumstances changed. None of us can magic away inflation of course, but the result would be lower costs and fewer nasty surprises.

And of course, there would be plenty of choice as different companies competed to provide the best service. While it might sound fanciful, we are on the cusp of this vision becoming a practical reality.

Demonstrate the benefits

The job of making this vision a reality will fall in part to the government, which is legislating on extending their ability to mandate industry participation in Smart Data across the economy.  

They want to empower customers to make better use of their personal data, supercharge competition and unleash innovation to help make consumers lives easier.

Supercharging competition is anathema to UK retail banks, but it should always be remembered that the introduction of Open Banking was part of the CMAs Retail Banking Remedies. 

As such, it’s never been more important for them to engage and educate their customer base about the benefits of consent-driven, secure data sharing, designed to help make them better off. 

The banking sector really can do much more to help consumers get to grips with how Open Banking works, what it can do and why they should get involved.

The bulk of the work though will fall to fintechs, which need to make the same case, shout even louder, and innovate more quickly than ever before.

We need Open Finance now, providing access to mortgage, savings and pensions data through trusted APIs. We need open data, to give consumers real time insights into what companies know about their lives, and how they can use that data to their advantage. 

And we need more open banking payments, to ensure instant, frictionless ways to pay.

Get this right to be the consumer’s ally

All this is a long way from the old claim I used to hear, that open banking would simply let people switch between pretty similar current accounts offered by competing banks. Instead, this work can be genuinely transformative, for our industry and for individuals.

I think of it this way. Your bank is Tony Stark. Accessing your bank securely through open banking makes your finances Iron Man – stronger, more durable and with all the armoury needed to make better financial decisions and improve your financial situation.

That’s why open banking based services will become ubiquitous. Manually totting up your own spending, switching between various price comparison websites, or calculating how much you’ll have to live on in retirement will seem as old-fashioned as physically going to a cash machine to check your bank balance.

If we get this right, we can make our industry a key ally to UK consumers. We can help them with the cost-of-living-crisis, improve financial education and tackle the loyalty penalty. Along the way, we can make financial services more inclusive and do much more besides. We’re all in the business of transforming how people manage, move, and make the most of their money.

We can improve the financial resilience of the nation, but we need to move twice as fast as we did in the first phase of open banking and accelerate the benefits to everyone in society.

The views and opinions expressed are not necessarily those of AltFi.