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If there is one piece of legislation that has changed the financial landscape to create new possibilities for the benefit of consumers and businesses it's Open Banking.
Created to give consumers and small-medium-enterprises (SME) better access to their own data through third parties who could provide services to improve their financial experiences, the (what seemed at the time) transformational legislation enforced in January 2018 would become the driving force behind increasing competition within the banking sector.
However, the legislation was not welcomed by everyone within the industry. Financial institutions were initially wary of allowing third parties access to their customer’s data. Considering that data is one of the most valuable resources in the world, this should come as no surprise.
Now more than ever, it is critical that we know that the data used is correct and fair if we are to achieve mass appeal. Last year it was said that over two million people were using Open Banking in the UK. This number has increased significantly as more and more people turn to personalised banking services. However, the UK’s population stands at around 66.65 million people. Although two million people using Open Banking products may seem impressive, it shows that Open Banking hasn't even hit a meaningful fraction of the population for us to see real transformation.
Furthermore, although Open Banking came into legislation in recent years, the concept of connecting fintechs across many subsectors has evolved since 2018 into a more inclusive, open blanket term - Open Finance.
So on that note, what are we trying to achieve with this blog? First, we want to start exploring a few topics; what is Open Finance, how can we reach mass appeal, how can we get the necessary products to reach the right communities and ensure it is not just a buzzword for fintech's, and what is Open 51 (a recently founded female-led Open Finance-focused initiative) doing to solve this?
So, what is Open Finance?
First up, what is Open Finance? Open Finance is a term that describes the act of consumers sharing their financial data with third-party providers (TPPs) that will further unlock innovative solutions in the financial services sector and beyond by making use of the expanded data set made available through secure Open APIs (here is a good article on what an API is).
Although it may not seem that there is much difference between the two terms, Open Finance’s mission, similar to Open Banking’s original noble mission, is to give communities of people - who may not have the tools to manage their finances effectively - back their data from the big financial institutions through these APIs so that they can financially prosper.
Whilst this is all well and good, there has been discussion around these well-meaning concepts with some suggesting that fintech's seem to have benefited greatly from the wealth of data they can now tap into (with permission from the user) through Open Banking - maybe even more so then the end-user, with many Open Banking-powered fintech's currently on the market.
So, with all this said, this led us to a single thought that could spark many discussions, and hopefully solutions and ideas - how do we ensure that Open Finance products and services are not just an added benefit to fintech's, but are used by vulnerable communities who need products that can bolster their life, financially.
First, what do we mean by the ‘financially vulnerable?
More than half of UK adults are 'financially vulnerable’ according to the FCA. The report showed that more than half (52% - 27.7million people in the UK) are in some sense considered vulnerable. Plus, more than a quarter (14.2m) is considered as having ‘low financial resilience’.
So what does that mean? Low financial resilience was defined as someone who has a lot of debt, low savings, or low, erratic earnings. In 2020, due mainly to the pandemic, this number increased by 3.5 million UK adults.
This has caused many unfortunate outcomes, with the FCA reporting that food poverty was also reported with 5.6 million people saying they were likely to use a food bank, while 17.9 million people said they would cut back on essentials. This was an increase from the year before.
Those who are financially vulnerable will also suffer from worsened mental and physical health problems. As we have said in previous blogs at Akoni, financial wealth and mental health are intrinsically linked.
How do we ensure Open Finance products and services get to vulnerable communities?
As we mentioned before earlier in this piece, the majority of the UK are not using Open Banking products and services. Why? In our opinion, the strength of the Open Banking narrative is weak. This can be harmful to the successful implementation of it, but also in the way it is perceived by the public eye.
Felicia Meyerowitz Singh, CEO and co-founder at Akoni, and founding member of Open 51 mentioned on a podcast that when crises such as Covid happen, “people are regressing to whatever they consider to be lower risk." This could challenge the use of Open Banking and innovations within that sector. To prevent a regression from happening, it is crucial that major financial institutions play their part in ingraining Open Banking into their services.
Without proper marketing and communications around the benefits of these types of technology, and how safe and secure it is, people have no idea why they should be using these products and sharing their financial data with companies that haven’t got the longevity or stable backing as the huge banks. We believe that it is on us and our governing bodies - the fintech/financial community - to teach and share knowledge with the public on why these products and services can change someone’s life, why they deserve to get their valuable banking data into their own hands to receive products to help them financially prosper, and why this can benefit their lives in a way they haven’t experienced before.
As Amy Kroviak, another founding member of Open 51 said: “I would ban the word ‘open’ full stop." The terminology is creating the wrong impression that data is open instead of emphasising how secure the process is. That is why it is important to never stop explaining to people how Open Banking works and how it contributes to creating a personalised and safe banking experience.
Sam Seaton, the third founding member of Open 51 and CEO of MoneyHub (and Akoni partner), also stressed the fact (in the same podcast linked above) that instead of being concerned about the security of Open Banking, we should remember how insecure our data was before. Previously, the lack of clarity around our financial data was much worse and Open Banking has been extremely helpful to counter this.
All in all, to ensure that these Open Banking-powered products and services get to the most vulnerable, we need to accept and evolve past the learnings we have experienced over the past few years, accept that it will take time to mass market, and pinpoint where the bigger banks have got it wrong when it’s down to supporting the unbanked, the homeless, those who still use cash but don’t have a place to withdraw money locally and gig-economy workers who may not have a stable income.
Although the point of this blog is to discuss how Open Finance can help these communities, we acknowledge it's harder than we think, with many obstacles such as improving technology skills across the UK (Nesta predicted that 42% of the EU population are now at risk of digital exclusion), and ensuring people are using mobile or online banking (uptake has also increased throughout the pandemic). Plus, thinking about those who do not have a smartphone or internet access should be considered especially when it comes down to improving the financial lives of people in the UK.
Only through this, and by making user-centric products that don’t just appeal to the technologically advanced part of the UK, will we get to a more accepted place for Open Finance and the benefits that come with it. Only then will we be able to support those who need it most. If covid has shown us anything, it's that too many people have got no financial support if the world was to change at a moment’s notice and that even in a pre-pandemic life, much of the UK population were never given a chance in the first place by mainstream financial services.
So, why should you choose Akoni to help you with your client’s cash decisions?
1) Safe and secure with the FSCS Government deposit guarantee
All deposits are held with each bank providing protection of up to £85,000 per bank, or up to £1 million for Temporary High balances.
2) Diversifying risk (spreading money across savings providers)
With the option to spread cash across several providers on the Akoni Cash Management Platform, you can diversify risk, and increase the chances of positive returns.
3) Increased returns & Better interest rates
In a climate of economic uncertainty, and with interest rates being cut across many providers, it’s not easy to find decent interest rates in a simple way. With Akoni, you can find competitive interest rates to suit your client’s specific needs.
4) Quicker, and hassle-free - no form filling
Akoni Hub provides a hassle-free cash management experience - your clients can onboard and open an account online with no fuss. Clients will only need to complete one AML/KYC process, can switch between providers, and manage their account on the Akoni Cash Management Platform in just a few clicks.
5) White label Adviser portal and tools
You have the flexibility to create a platform that works for you and your clients. Add your branding to showcase who you are through a sleek, professional cash management platform designed with you in mind.
The award-winning Akoni Cash Management Platform is already leading the way in the wealth management sector, and has partnerships with Barclays, Aldermore, Investec, Clydesdale, amongst others. The ability to white label the platform gives financial advisors flexibility to help their clients move cash depending on ever-changing macro and micro environmental factors.
Find out more about Akoni: Akoni is an award-winning UK cash platform, which provides a marketplace to financial advisors and wealth managers through a bespoke white-label offering, or off-the-shelf offering. Akoni uses innovative technology to personalise cash planning solutions for clients, and also provides a full API solution to banks and insurance clients.