Tweaking financial services? No, Open Banking will change society

It’s Okay. You’re right to be sceptical.

I was too.

The very idea that those ‘few lines of code’ could do such a thing sounds laughable. Bordering on snake oil.

How could it possibly do anything but shuffle a few consent gateways, and automate a fundamentally static financial transaction between two parties? Isn’t it just another buzzword that doesn’t carry any meaningful weight? At best, a nudge for long-term financial sector reform?

Before attending the launch of Nationwide Building Society’s ‘Open Banking For Good (OB4G)’ initiative last Thursday evening, I was already a convert to Open Banking.

But the thought of using it — immediately — for the purposes of social advocacy and poverty reduction? Fascinating.

Accompanied by the gentle whirring of cameras and lights, representatives from the UK Open Banking ecosystem sat and listened as frontline advisers, researchers and charity campaigners from the fields of debt advice, financial wellbeing and mental health spoke about the new frontier. Open banking as social reform.

Not only as a route to efficiency savings and innovation (as many still see it), but as something that can help the poorest in society, right now.

How?

As best summarised by one of Citizens Advice’s clients, quoted in a presentation from Senior Policy Researcher Joe Lane (above):

‘It doesn’t take much to tip you either under or over’

Unplanned financial shocks, coupled with an absence of savings, is enough to drag anyone down. Until it happens to you, the importance of an app that, perhaps discreetly, ‘rounds up’ transactions or warns that you’re overspending suddenly becomes critical.

As explained by the Money Advice Trust team, who receive hundreds of thousands of calls a year from people struggling with their finances, conversations always take on a structured, no-nonsense financial planning flavour from the outset.

The sooner you put plans in place and get full visibility over your ingoings and outgoings (especially when you have children), managing the fallout becomes easier. But the longer you live wearing a blindfold to your financial situation….? Well, the results are perhaps obvious.

Helen Undy — director at the Money & Mental Health Policy Institute — drove home the acute correlation between financial and mental strain.

Most effecting was seeing the relationship between financial difficulty and a lack of impulse control. People have a habit of spending more — recklessly — when their income is at its lowest.

The vicious cycle begins; further money problems consequently creates stress and psychological harm. Repeat.

If so many suicides are caused by financial loss, and our interaction with apps and mobile devices is skyrocketing, open banking applications that keep money management front of mind could well become key to a nationwide mitigation strategy.

Michelle Highman from The Money Charity emphasised the importance of positive language. Solutions to financial hardship could well be a problem not of the speed and accuracy of the subsequent support, but the way we approach prevention in the first place.

People have a habit of spending more — recklessly — when their income is at its lowest.

It’s not enough to simply tell people they need to be careful with money. Terms like ‘debt prevention’ are scary, and more likely to disengage people from actively looking at alternative solutions. Open banking needs to give people a sense of wellbeing, of taking control back over their lives, not just their sterilised financial data.

By using this sort of language, you and your users will thrive.

Overall, I detected a sense of excitement and energy after the event. All those at Nationwide, The Money Advice Trust, The Money Charity, Citizen’s Advice and the Money & Mental Health Policy Institute should be congratulated for informing, stimulating and indeed humbling the open banking community.

…Here are some take-aways from the event:

Use Cases

Quick Decisions

People suffer financial fatigue, and people that need help most abandon the additional ‘form filling’ steps merchants require of them for credit checks. More forms, less applications, less access to credit. Open banking can facilitate both effortless KYC and immediate, accurate affordability checks from historic financial activity.

Gig economy

The self-employed market in the UK comes with huge opportunities…and risks. The tendency to think month-to-month (natural for anyone with sporadic income) aside from the obvious uncertainty means pie charts about your spending isn’t enough. Apps need to think about what financial planning support they can offer over a 8–12 month period and beyond.

Behavioural science

By tracking and analysing spending habits generated OUTSIDE the scope of your app, you’ll get more traction: Partner with charities and think tanks with data to hand that do this sort of thing for a living. Not only would intervention and red flags be easier to build into your product, but, commercially speaking, more accurate, targeted offers and discounts are achievable.

Government uptake

The wealth of information government agencies, the NHS and HMRC could access via open banking applications goes without saying. Those stakeholders whose responsibility over defining and preventing mental health no longer have to behave reactively to someone’s financial disruption. Such insights can inform policy directly and help connect the dots.

Self-exclusion

People don’t respond well to red lines and being told off. When building a PFM solution, focus on the subtlety of your messaging. Inception, if you will. You want your users to come to terms with any overspending themselves, and adding visibility over account activity from parents or trusted friends is a good start. Many apps like gohenry, Osper and Nimbl prove that the demand and supply are there.

Challenges

OB specifications

Not available currently, but getting merchants and banks to develop tax code and government benefit categories would help. This would accelerate one of first checks conducted when someone’s finances require intervention. Checking you’re owed what you’re owed.

Real-time data

For example, the ability to detect gambling activity — the first instance ever — at 2am on a Tuesday morning, the day after salary debits cease, would give a very clear indication of what could be happening to someone. Authorities or family members would need this information quickly, and for it to be as accurate as possible.

Staying informed

Of all the categories of financial capability that Citizens Advice track between a client’s first and second assessment, ‘staying informedranked bottom. The ability to integrate the wealth of Open Data out there on bank products would be a worthy addition to any app seeking to do good.

Tone

Engaging propositions are dealbreakers for those sensitive to financial mismanagement. To consent to an app — let alone friends and family — seeing your activity requires the correct use of language, design and feel. In theory it’s a sure way to protect people, but in practice? Very difficult.

Open Banking’s social impact alone should be a reason for everyone to work hard to make it a huge success.

… to debate OB4G use cases, reach out to hello@yapily.com or join the Yapily slack channel here.