How can Open Finance help bridge the UK savings gap?

The UK savings gap is a hugely pressing issue. The amount and rate at which working people are saving money for retirement is at a significant disparity with the amount required for a desirable living standard in later life.

Deloitte projects that the savings gap in the UK will reach a staggering £350 billion by 2050. This highlights the urgency to address the issue and find effective solutions to ensure individuals are prepared for their financial future.

What can Financial Services do?

Various factors contribute to the UK savings gap; increasing living costs, consumer debt, and a lack of sufficient financial education. Encouragingly, efforts have been made by the government and financial institutions to address this issue by introducing legislative changes and initiatives aimed at promoting savings, such as auto-enrolment, increased ISA flexibility, and the Personal Savings Allowance, but there’s still more to be done.

Savings capacity depends upon people having available money. At Moneyhub, we call this available money Potential. It’s the money left after non-discretionary spend is subtracted from income.

By helping users increase their Potential we can enable them to put more money in savings, investments or their pensions.

Helping people get established

According to the FCA, over a third (34%) of UK adults have less than £1,000 in their savings. For 18-24 year olds, that figure jumps to 47%.

These shaky foundations mean that as people then move through their late twenties and into their thirties, they may struggle to build savings capacity for things like a first home. Many are renting and may have taken on debt to get through the day-to-day.

So how can Open Finance help people establish themselves financially with firm foundations to build upon? And how can it help financial services engage them?

Engagement tools to help people take control

Whilst no amount of tools can make up for chronic low income or help families who simply do not have enough money to make ends meet, most money advisors say that the key to staying in control is to monitor transactions, set and stick to budgets and avoid missing regular payments.

Our technology is designed to help people do just that. You can embed the following solutions within your own offering to help users manage their money better, and make it easy to do so:

• Financial MOT

• Budgets and Forecasts

• Credit Score Improver

• Emergency Cash Builder

• First Home Saver

• Benefits Finder

• Personal Debt Manager

• Complete Personal Financial Management App

Get in touch to discuss which solutions could work for you →

Real users, real stories, real difference

Don’t just take our word for it. Ed is a Moneyhub user and father of 3. He’s worked in hospitality, the NHS and a forklift driver, and was struggling with debts he’d built up as a younger man

He explained, “I’d built up a lot of debt on credit cards by overspending and basically not having an understanding of where my money was and simply not caring. I used to buy things I could not afford and at the end of each month I was scrabbling around for pennies”

“I really like Moneyhub’s spending budgets, in fact they were almost life changing for me. I’d miss transactions in my bank accounts and credit cards and then spend ages going back trying to work out where everything was going.”

“By creating spending categories for everything such as fuel, beer, coffees, haircuts…all sorts of things, I could work out trends using the spending and income analysis, which enabled me to compare month on month. Looking back over the year I could see what I spent on average so I used that to set budgets and then every time I got paid I was able to put aside money in my bank account knowing that everything I had left was spare money. Since then my finances have turned around completely”

From day-to-day, to planning for the future

Once Ed felt in control of his day-to-day spending, he naturally started engaging with his longer-term finances:

“I had connected my workplace pension to Moneyhub so when the pandemic started I could see my pension’s value. Every day I looked it was going down as share prices were going down. Before Moneyhub I’d never have known about my pension but because it’s so visual, seeing the graph is brilliant. In fact it surprised me just how quickly pensions can go up and it's made me want to pay in more, especially now I’ve got spare money at the end of the month”

Building financial resilience unlocks customers’ Potential

Open Finance makes it easy for people to engage with their finances where they might have felt overwhelmed before. With oversight of where money is coming in and going out, incremental changes can be made, which include putting more money aside for later life.

Open Finance also offers businesses the chance to create highly personalised customer journeys throughout their financial life, resulting in stickier customers with increased Potential, to go some way to bridging the UK savings gap.

Find out more about how our technology can help you unlock your customers’ Potential →

Open Banking is encouraging smarter savings behaviour

The initiative may still be in its infancy, but open banking has already proved a catalyst for change – not only within the UK financial services sector itself but the savings landscape as a whole.  Launched with the intention of increasing competition in the market and triggering innovation, it seems the momentum towards open banking is ushering in a new era of money management.

Just four years ago, research undertaken by the Social Market Foundation found that only a quarter of customers had current accounts with more than one bank. Today, our own analysis reveals that the average user now saves into three different accounts – often with a number of providers.

Thanks to the collaborative model made possible through PSD2, banking data is now actively being shared through APIs between unaffiliated financial service firms to deliver enhanced capabilities to customers.  According to our findings, it seems these connections have quietly been encouraging UK savers to be more ‘savvy’, spreading their money across several accounts with different providers to boost returns.

While the majority of people are still more likely to save with their main provider – the average amount saved into a high street bank being £5,828 – the results of our study showed an increase in the number of users opting for challenger banks as secondary providers, with the average amount saved in these accounts sitting at £2,503.  

Meanwhile, research published by the peer-to-peer lender Zopa supporting the increased breadth of bank accounts, found that one in three people hold two or more current accounts. It also found that almost half of those with a credit card do not have it with their main bank and more than one in four looks elsewhere for their regular savings and instant-access savings accounts.

These findings serve to illustrate the market shift that is taking place and the growing prevalence of the multi-bank approach; one that The Social Market Foundation cites as an indicator of a financially sophisticated customer who is more attuned to the benefits of shopping around.

Traditionally, savings were all managed with the same provider - customers held a current account, a savings account and any mortgages, loans or insurance premiums all with the same high street bank. However, the advancement of digital technology and enforcement of new regulations coupled with the ambition of FinTech entrepreneurs has sparked a savings revolution. Some users may still be tied to their banks, but when it comes to putting cash away for the future, society is moving fast towards the multi-bank model.

By splitting up savings into different cash pots, it becomes possible for users to tailor their returns to benefit from better rates. For instance, if one pot comprises of significant savings that you don’t intend to touch for five years, it might make more sense to invest it into stocks, shares, and funds in order to take advantage of more potential market growth.

Meanwhile, the money you might be saving for a luxury holiday in the near future could sit in a fixed-rate savings account while the safety-blanket cash you rely on for emergencies can remain in easy-access accounts that pay a lower rate.

Moreover, considering the cap on how much you can deposit to receive a good rate, separating your money is a smart way to mitigate risk. Under the Financial Services Compensation Scheme, you are only protected for up to £85,000 per bank or building society in the event of a collapse. With your wealth split across several providers, you can minimise the risk to own savings in the event your main bank goes bust as many did during the global financial crash.

When it comes to managing money, the younger generations are set to face stronger headwinds than those experienced by their parents and grandparents. With this in mind, there has never been a better time for a transformation in the financial services sector. Today, what people need the most are tools that encourage engagement with their finances; they need visibility across all the various pockets of money they have, be it insurance premiums, holiday funds, student loans, and pension pots.

Thanks to open banking, it is now possible to view all of your savings in one place on platforms like Moneyhub. No matter how many banks you have spread your savings across, you can gain a 360-view of your finances and control them through the same tool. With greater control over their money, UK savers are finally in a good position to improve their long-term financial health.

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Algorithms aren’t enough: how robo wealth managers can use Open Banking to provide better advice

We’re living through an interesting period in financial services. From the revolution of open banking to the rapid rise of the robo-advisers, rarely has our industry seen so much disruption in such a short space of time.

For wealth managers, much of that innovation has focused on using algorithms to bring down costs and reach new audiences. The 130 (and counting) robo-advisers that have entered the market are a welcome addition, but is their potential being realised?

Underusing the algorithms
The problem isn’t with robo-products themselves – it’s with their scope.

Because the current crop of algorithmic advisers focus on only one aspect of users’ wealth, like their ISA or mortgage, they’re missing out on the opportunity to offer more holistic advice.

Open banking lets wealth managers take a much wider view of their customers’ finances and provide more suitable advice but few, if any, providers have yet to take full advantage of it and the market is due to see a surge of new players who will.

Let me give you an example.

Sarah wants to start investing. She’s been reading some articles online and thinks that a robo-adviser could be a cost-effective way to get started.

She’s not wrong. But what her ISA robo-adviser can’t see is that Sarah also has £5,000 of credit card debt and high-interest loan on her car.

Any human adviser would tell her that paying off her credit cards is a far more effective use of her savings. But with access to a very limited set of information, her robo-adviser can’t make that judgement call.

A better way

As any adviser will tell you, more information equals better advice.

Robo-advisers have the clear potential to offer truly holistic advice, but manual date entries and fact-finds fail are failing to unearth the required information. But by using open banking APIs to legally aggregate a customer’s date, the algorithms could access a much wider data set that includes credit cards, bank accounts and ISAs, and use it to generate suitable, targeted advice – while saving customers from spending hours on fact finding.

Providers could incentivise customers to add more APIs by giving them a reliability score. Adding one bank account would give you a lower score than if you also added your credit cards and ISAs, for example. It’s a smart way to encourage users to help wealth managers provide optimal financial advice.

Ultimately, we as an industry should always be looking for ways to improve the suitability of financial recommendations. Algorithms can go some way to facilitating this conversation – but surely gaining a better understanding of your customers’ date is the real answer, hidden in plain sight.

To find out how we can help your business evolve, get in touch on 0117 280 5155 or email enterprise@moneyhub.com.

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