Open Banking is democratising banking. You can share financial data from your bank to third-party service providers with more control than ever before. And the benefits don’t stop there. Here are seven other ways open banking can be used for good.
1) Financial inclusion
Over 5 million people in the UK - 9% of the total adult population - have little to no credit history, which excludes them from accessing traditional financing such as bank loans. Lenders can use open banking data to create a more complete picture of a person’s financial situation, for example by including real-time transactions. Thus ‘credit invisibles’ are given an opportunity to access the financial services they were previously excluded from, potentially saving them from predatory high-interest alternatives.
Salad Money, for example, ensures NHS workers have access to affordable and fair credit. They believe that “the principles of open banking should be adopted by all lenders to eradicate financial exclusion and open up low-cost loans for critical NHS workers,” Tim Rooney, CEO of Salad Money.
2) Sustainability
It’s not always the first thing to spring to mind when we think about open banking, but adopting open banking can also help our planet.
Open Banking contributes to greater efficiency in financial transactions, which reduces the amount of energy required to complete transactions. By transferring financial information digitally, Open Banking also reduces the amount of paper-based processes, the need for physical bank branches as well as the need for customers to travel to those branches, all of which avoids carbon emissions.
Yotta Pay’s mission is to create a sustainable consumer payments infrastructure without plastic or paper to become the UK’s first ethical payments processor.
3) Innovation and competition
Open banking data is driving innovation and competition in the financial services industry. Now that third party providers can access bank data (with consent), there are more players in the market striving to offer ever more inclusive, efficient and affordable products. It’s levelling the playing field by providing small or new FinTech businesses with access to the same data that historically only big banks had access to (again, only with consent!)
4) Personal finance management
With open banking data, consumers can aggregate all their financial accounts in one place and track their spending. Budgeting apps like Emma rely on open banking connectivity to bring together information from several sources. And if someone is experiencing financial difficulties, third-party providers can analyse their bank data to create debt management plans that help people pay off their debts more quickly and efficiently.
5) Closing the SME finance gap
Over five million SMEs exist in the UK, accounting for 61% of employment and 52% of turnover in the UK private sector. And yet, 80% of applications for funding are rejected. By analysing transaction data, third-party providers can create lending solutions that are tailored to the needs of small businesses and help close the SME funding gap.
6) Business finance management
Not only does open banking help businesses get funding, it also helps them manage their day-to-day finances. Companies like Comma and Crezco can help businesses with more efficient solutions for invoicing, reconciliations and payroll. Open banking provides real-time data on business’ cash flow, expenses and revenue, sparing many a finance department from arduous manual tasks.
7) Alternative lending
Open banking can also be harnessed to power peer-to-peer lending, as exemplified by Lending Crowd. They can streamline the loan application process by verifying income and expenses directly from bank account data (rather than their customers having to manually upload them).
Peer-to-peer lending platforms can also make more accurate lending decisions based on real-time financial information which can detect changes in financial wellbeing such as a reduction in income or an increase in debt. This can allow them to help borrowers manage their finances and avoid defaulting on loans.
In sum…
Open banking is already being used for good in many ways: from fostering a fair and innovative competitive landscape, to creating a more inclusive and efficient financial ecosystem that benefits consumers and businesses alike. Yapily and its customers are contributing to this revolution by providing a secure and efficient platform for accessing open banking data so we can harness it, for good.
