Open banking has key role in cost-of-living crisis

By Paul Lloyd, Co-Founder of Snoop

It has not been a smooth start to 2022 for household finances. Energy costs are set to increase 54% in April and inflation has already drastically added to grocery bills. The Centre for Economics and Business Research estimates that the average household will see costs increase by £1,700 this year.

With pay unlikely to match inflation, we’re talking about a situation where everyone ends up worse off. For many, smart money management will be key to navigating the cost-of-living crisis.

With households facing such severe financial headwinds, Open Banking looks set to explode into the mainstream of financial services as it can power solutions that help consumers better manage their money and spending under cost-of-living pressure. Open Banking’s time has come.

4.5 million people are already in on the act, but the hard truth is it should be millions more. Recent data suggests that only 14% of the UK population fully understands what Open Banking is and how it works. Even among younger consumers, this figure only rises to 1 in 4.

This is because, although the technical framework and standards that will enable Open Banking to flourish (and save consumers and SMEs millions of pounds) are now in place, little has been done to build awareness of the benefits among the general public.

It’s like spending millions on a new bridge that will shave two hours off a long journey but not putting up any signposts or directions. For those in the know, great. For those who aren’t in the know…well you take my point.

Some argue that it’s the job of the fintech start-ups operating in the sector to create the awareness required to reassure uncertain consumers. And while that is true, it cannot be true that they have sole responsibility. Many people are still unsure if their bank supports open banking, if they’re allowed to share their data, or indeed if it is safe to use at all. That needs to change.

The competition authorities, regulators, banks and fintech firms already operating in this space need to do a much better job at explaining the benefits of being able to take control of your data safely and securely through regulated Open Banking firms.

The competition authorities want Open Banking to work for everyone, not just the digitally savvy or tech confident, but cannot mandate banks to promote it. The regulators want it to work and have noted that it could substantively change the nature of competition and provide better outcomes for consumers. Then there’s the banks…

Despite the colourful annual reports and slogans, most banks are too slow moving and internally focused to make Open Banking work for themselves. The knock-on effect to this is a reluctance to properly promote, inform and educate their customers about the benefits of sharing data – namely competition for their custom, improved choice and better value. If Banks truly believed in acting in their customers’ best interests, we would see very different behaviour.

Supporting the aims of competition, innovation, and offering consumers and businesses greater control of their finances is a virtuous circle that would benefit everyone, and Open Banking is just the beginning.

It may feel premature given the challenges discussed here but work on the next stage is well underway. Open Finance encompasses not only information about banking transactions but the full range of financial data including investments, insurance, lending and credit, and pensions. Open Banking and, eventually, Open Finance will present the opportunity for people to transform how they manage their finances and lives.

Financial literacy and resilience are nowhere near what they need to be in the UK. The pressure on the cost-of-living has exposed this more than ever, and personalised finance through Open Banking will help bridge the gap in a way that can make a meaningful difference to millions and millions of consumers. It’s time for everyone to step up and make it happen.