What can open banking do for financial inclusion and entrepreneurship?

Technology is enabling consumers and small businesses to access immense amounts of information about the world around them. But how much insight do they have into their own information, especially when it comes to their financial lives? A whole lot more soon, if ‘open banking’ is successful. This shift will enable customers to securely share their banking data with trusted third parties, giving rise to a new generation of tools that will help ordinary people make better decisions based on their data.

Open banking and the future of freelancing

These tools could be especially useful for those with unstable incomes, including the financially marginalised, microbusinesses and freelancers. Oval Money is a platform designed to empower all of these groups to be wiser about their money. I’ll focus here on freelancers, who are playing an increasingly important role in Europe’s economy. In the UK, the freelancer population shot up 49% between 2008 and 2015, and the country’s 2 million freelancers now account for 42 per cent of the 4.8m self-employed population and represent six per cent of the total workforce. In Europe the total number of independent professionals is 9.6m, 60% of which are aged between 25 and 49 and over half of which are based in Germany, Italy and the UK.

Oval Money is taking a three pronged approach to improving financial management for freelancers.

  • We’re building for the future by using open banking APIs to connect freelancers’ bank accounts and credit cards with tools that monitor spending habits and facilitate regular savings.
  • We’re teaming up with the brightest minds in personal finance and behavioural economics to develop artificial intelligence algorithms that, through predictive analysis and machine learning, will guide independent professionals to a clearer understanding of their spending and automate regular contributions to a secure digital savings account.
  • We’re working to unlock the ‘collective intelligence’ of freelancers on our platform, letting individual users know, for example, the cost of their financial services relative to other freelancers in a similar position.

Bank/fintech collaboration in an open banking world

In order for Oval Money and other fintech startups to succeed in bringing the end user an amazing solution, open banking needs to become a truly European standard, whereby banks across the continent work more closely with fintechs to allow the smooth sharing of their customer data. This could lead to the collaborative design of financial services fit for specific groups of customers and fewer “one-size fits all” solutions that typically don’t meet the needs of the financially marginalised. In this new market, freelancers — individuals that manage both their personal finance and their professional finance through the same bank products today, with no real transparency or accessibility to proper financial solutions — can find new ways to foster the growth of their businesses.

Post 2018, after having deployed the right infrastructure for open banking solutions, the role of banks will change rapidly. Banks will have to think about how to redesign their processes and will need to invest in payment and compliance infrastructures, with fintechs partnering as structured over-the-top models. Banks should rethink how to best leverage their huge footprints, with thousands of sales representatives and High Street branches that can still reach customers locally.

Making open banking safe for all

In order for the financial industry to evolve as described, the work of a number of interdisciplinary experts will be necessary. Security and liability, two challenges that are already very pressing, will be further emphasised under open banking. With a higher free flow of data, it is very likely that more vulnerabilities will exist for cyberattackers to target. Introducing stricter security and privacy standards, without overextending the barriers to entry for new entrants, is an unresolved challenge facing the regulators. With a higher possibility of hacking incidents, fintechs and banks must ensure that end users are able to easily understand how their data is managed, how their money will be protected and who is responsible if anything goes wrong.

With all these questions still open, it will be a very challenging but extremely disruptive time that, if designed with a human centric approach, will bring incredible opportunities to reduce inequality and improve financial literacy across Europe. At Oval Money, we are excited to be part of this change.

Benedetta Arese Lucini is CEO of Oval Money

Banking could work better for small businesses. Yup. So what does that look like? The Open Banking Anthology, a publication of the Open Up Challenge, is where we look to the future by paying closer attention to what people are doing in the present. You can read more on ‘open banking’ here.