Open banking: empowering consumers to take the reins on their finances

By Tasha Chouhan, Strategic Accounts Sales Director, at Tink

 

After 14 straight rises, the nation has been breathing a sigh of relief as the Bank Rate remains at 5.25%. But despite the green shoots of hope, household spending on essential items and lifestyle costs remain high, with average fixed rate mortgages remaining substantially higher than they were last year.

Against this backdrop, it’s no surprise that many consumers will be looking for financial services that will support them through this uncertain time. For example, 31% of Brits surveyed by Tink report that having a clearer overview of their finances through services such as budget management tools, would help them to navigate the cost-of-living crisis.

And while it’s no silver bullet, open banking can equip banks and lenders with services that can improve financial health. It not only provides useful tools to help consumers better manage their finances, but also gives clearer oversight and visibility into spending behaviours, enabling better, more accurate affordability decisions on loan applications.

 

Getting granular with financial management

With the necessary consents, data-driven services can give people detailed insights across all their bank accounts to help them to closely monitor their spending habits.

The ability to see data from all financial accounts, as well as having access to features like subscription management services, or recommendations on how to get the most out of rewards programmes, could help people identify where they could cut down on expenses or access better deals. Breakdowns on spending like this might lend help to people wanting to stretch their money further without having to rely on savings or using lines of credit.

There’s a big opportunity to be had for banks and lenders who provide these features too. With earlier research by Tink showing an estimated 44% of those ‘just managing’ financially would jump ship to a bank that provided recommendations on where to save if their current one didn’t, those who invest in providing this level of personalised support will help customers to navigate the challenges of the cost of living crisis. At the same time, doing this will put themselves in good stead to win and retain business by providing an enhanced level of service.

 

Better insights for tailored lending

As well as improving financial management, open banking can also help lenders paint a more accurate picture of a customer’s finances for better lending decisions. With over half a million households seeing their mortgages come to an end over the coming festive period, lenders need to ensure they’re offering customers affordable products which suit their financial situation.

For example, through open banking and with the consent of the customer, lenders can access real-time, data-driven insights on an individual’s monthly incomings and outgoings to paint an accurate picture of their financial situation. These insights can then be used to enable credit decisions in minutes, rather than days, and ensure that any credit offered is affordable for the customer, while ensuring lenders don’t lose out from payment defaults.

Furthermore, should a customer come into financial difficulty down the line, lenders can use open banking data to understand where and when repayment issues may arise, and ensure that the customer receives the necessary support to avoid any problems occurring.

 

Creating an ecosystem that benefits consumers and banks alike

Promisingly, banking executives recognise the need to support their customers, with our recent research showing that an estimated 41% of banking executives feel that they have a responsibility to aid consumers through the cost-of-living crisis. However, the same research also found that just over a quarter of consumers feel that their banks are providing them with tailored support, and many said that they have never been contacted by their bank regarding their financial situation.

To close the gap and ensure that banks are providing the desired level of support, there needs to be a cohesive response from the industry to provide customers with the tools and services they need to navigate the cost-of-living crisis. It’s clear that there is an opportunity for us all to do more to support customers through the economic uncertainty.

Whilst it is by all means no quick fix for people struggling with high interest rates and the cost-of-living crisis, harnessing services that offer real-time insights can provide control and visibility during challenging times; whether that’s to help consumers with their personal financial management, or enable lenders to provide accurate and appropriate products and services.

 

 

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