Previously siloed aspects of financial services data, such as mortgages, consumer credit, bank accounts, investments, loans, savings, pensions and more can now be seamlessly connected thanks to the power of Open Finance and innovative TPPs (third party providers) such as Moneyhub.
As Angela Strange, general partner at Andreessen Horowitz, predicts: “nearly every company will derive a significant portion of its revenue from financial services” - and in the not-too-distant future too.
Before we had Amazon Web services, if you had a brilliant idea you had to go out and buy equipment, find a building and spend ages wiring things together. All of this had to be done before building the first line of code. AWS flipped this on its head and now anyone with an idea can quickly and easily start a tech business. The same is now happening with financial services.
When it comes to finances, there are three questions people tend to have:
What have I got?
What do I need?
And how do I get what I need?
Open Finance is a consumer content-driven approach to answering these questions by bringing your financial world into one place, and providing unique and relevant data, tools and insight.
Open Finance helps people solve real world problems. such as applying for a mortgage, saving, getting rid of debt, enabling payments, tax returns, and planning for career breaks, as well as even more technical challenges.
Open Banking is built on top of the Payment Service Directive Two (PSD2). Open Banking has finally unlocked bank data and put it in the hands of its true owner - the business or consumer who owns the account. This has been a great first step for organisations towards true open data (and Open Finance) - something Moneyhub has always been working for.
Mercer is the world’s largest outsourced asset management firm. They approached us with one core problem: “pensions modelling tools are typically over-complicated, arduous and stressful to use, and provide no incentive for people to come back and manage their finances.” We set out to tackle this problem using our technology to build the Mercer Money platform - offering Mercer customers a complete financial wellness tool.
The Big Exchange (co-founded by The Big Issue) are building a community focussed on making a positive impact through an inclusive financial system that is available to anyone. We used Moneyhub technology to power their digital wallet and their marketplace - offering a win-win scenario where The Big Exchange can increase assets under management, the consumer is happy with returns, and the world benefits as a result of these investments doing good.
A building Society came to us with a vision: “there must be a fairer, quicker and more cost effective way to run affordability checks on customers”. Open Finance makes it possible to truly understand all aspects of a customer's financial world - well beyond what is visible from traditional credit reports. The result is mortgage affordability checking that is faster and simpler than traditional approaches and can say ‘yes’ to more people, offering a fairer outcome for applicants.
In a nutshell, Variable Recurring Payments allow customers to safely connect authorised payments providers (PISPs) to their bank account so they can make payments on the customer’s behalf, offering more control and transparency than existing alternatives such as direct debits and card payments.
Sweeping (which is enabled by VRPs), is the automated movement of funds for a customer between two accounts in their name. There are many examples of where this could be used, such as Sweeping funds from a current account to a savings account, or a current account to a loan account - the possibilities are endless, and more examples are covered below.
“VRPs and Sweeping form an exciting relationship to make personal finances run more effectively, encourage easier saving and ultimately make money work harder for the individual.”
This is where it gets genuinely exciting: VRPs not only provide a more secure and cost effective replacement for Direct Debits and card payments, but they are also faster and less prone to error. Gone will be the days of mistakes due to manual form entry, delays with BACS payments (which take up to 3 days) and worry about data breaches (as cardholder data will not be collected or stored).
Mistakes made due to manual form entry can and unfortunately do happen, with cards often used as a back-up. But even then, credit cards can increase customer churn when they expire, are lost or stolen.
With VRP, no credit or debit cards are required to make a payment, nor is there a need for businesses to collect or store confidential cardholder data on file. This makes VRP more secure for the customer, as no data can be intercepted by fraudsters. Also, it’s very easy to cancel mandates from either the bank or the PISP, meaning the consumer doesn't have to worry about leaving a credit card on file and forget about it. Businesses in turn don’t have to worry about data breaches, high card related fees, and the associated burden of Payment Card Industry Data Security Standard (PCI DSS) compliance. Instead, customers’ are securely connected to their bank’s website or app to pay by bank transfer.
EXAMPLE: Instead of a card on file, with VRP, a customer can connect their bank account to their Amazon account, only with rules to limit their spending based on their own preferences. The customer will be more secure and have a better experience, and businesses can receive funds faster and without concerns around cardholder data - win win.
With VRP, no credit or debit cards are required to make a payment, nor is there a need for businesses to collect or store confidential cardholder data on file.
Outdated systems such as the BACS system used for Direct Debits could really impact the potential of Sweeping. Often operating on a three working day cycle, a payment request is made on day one, with the funds debited and credited on day three. This means that any Sweeping instruction would have to be made three days in advance of when the funds are transferred (and even longer if the working days straddle a weekend or a Bank Holiday). We believe that this delay significantly undermines the ability to create valuable Sweeping propositions for the end customer.
When it comes to repayments, there are some staggering benefits to using VRPs. At the moment, repayment plans rely on expensive Direct Debit payments. Direct Debits were never designed to allow money to move between people’s bank accounts - they were meant as a way for a merchant to take money from people with no restrictions. For Direct Debits to work for Sweeping, an Intermediary Account would be needed, which carries prohibitive costs - which are often passed onto the debtor as an additional charge. It’s made worse, because if the debtor has insufficient funds for the payment rather than being notified, the bank charges another fee. VRP stops this because the balance can be checked before the payment is triggered.
EXAMPLE: A repayment is due at the end of the month, but the customer is paid a day late, meaning there are insufficient funds and they will therefore incur a charge or go overdrawn. With Open Banking, there can be a balance check first to ensure funds are available. Moreover, the missing income can be flagged and everyone involved alerted (with consent from the consumer) to wait an additional day and try again.
When combined with Account Information Services, we see even more innovation, as repayments can dynamically increase when spare cash is available and the consumer has consented to pay off their debts as quickly as possible, even building up credit should they need to take a payment holiday.
EXAMPLE: Any unused money at the end of the month, can be spotted automatically and the customer offered the option to automatically sweep the extra money to pay off any outstanding debt. Most lenders are comfortable with overpayment, and some even allow a payment holiday based on any previous overpayment made. Sweeping left over money can help repay debts quicker or build a safety net for months with unexpected bills or outgoings.
Sweeping has the potential to revolutionise the savings world. Through VRPs, you can sweep spare cash into savings, pensions or investments, and interest rates on savings can be maximised to reach saving goals sooner. Loans can also be repaid quicker, reducing the cost of debt, while funds can be swept into different pots to enable consumers to budget more effectively. The individual can set up rules with interventions, for example, when a pending recurring payment is due that might mean Sweeping is not the right thing to do. In the future, we believe it should be possible for money to be swept to a charity, house mate or family member - something that banks should already be championing, but aren't.
EXAMPLE: A customer who lives in shared accommodation is asked by their flatmate for their share towards the payment of a gas bill. With VRP, it is easy to trigger a payment that automatically sweeps the money from all involved parties, into the account of the person who paid - all on the same day the money came out. This means that nobody is out of pocket, and the house remains harmonious.
“It’s important to understand that it’s all about the rules which can be wrapped around VRP that trigger the innovation. To date, consumers rely on banks to do what is right. In the future, automated money management will be determined by the consumer or business who the money belongs to.”
VRPs and Sweeping form an exciting relationship to make personal finances run more effectively, encourage easier saving and ultimately make money work harder for the individual.
The team at Moneyhub passionately believe in innovating for the benefit of the end customer, and helped develop the Open Banking Standards we use today. But we don’t want to stop there. VRP paves the way for the development of payment innovation and the creation of new financial services propositions that truly put customers first - we will be championing their use, and encourage you to do the same and join the consultation process.
We’ve made our response public in advance of the deadline to encourage the wider community to utilise the response and add their own voice to the consultation. All consultation responses are due by 12pm GMT on 4th December and must be submitted by the online Consultation Survey only.
More than 10 million people are contributing to workplace pensions following auto-enrolment, but engagement and contribution levels remain low. Traditional ways to engage people in later-life planning have not worked. And this matters, as the vast majority of people are at risk of lower living standards in retirement.
One way to bridge the engagement gap is to talk about the things people say they care about. A range of studies, including the FCA, show people - especially younger people - are more likely to engage, save more and take some investment risk when their pensions are responsibly invested.
Percentage of members willing to engage, contribute or take more risk if pension savings are responsibly invested - Data source: FCA
All investment has impact, and regulators, scheme managers, providers and members are increasingly incorporating environmental, social and governance factors as part of prudent risk management. Now, schemes’ statement of investment principles have to state how they account for financially material considerations, including Environmental, Social and Governance (ESG) considerations like climate change.
The overwhelming majority - more than 90% of master trust pension scheme members - are invested in their providers’ default fund. Default funds provide many important protections for pension members. So why not tell scheme members about the real world impact their pension contributions are having while invested for their future within the default fund? This Quietroom video shares pension savers’ positive reaction to seeing their pension is invested in housing, hospitals and renewable energy - and horror at the thought it could be funding tobacco or coal.
A recent DCIF report showed 80% of DC savers want their pension investments to do some good as well as provide them with a financial return. Younger cohorts and women are particularly interested in the impact of their money and ESG issues (Ref. 1) so there is an opportunity to have an outsized effect engaging with these groups that have often been underrepresented and underserved.
“A recent DCIF report showed 80% of DC savers want their pension investments to do some good as well as provide them with a financial return.”
Open Banking and Open Finance are secure data-sharing frameworks that enable data from utilities companies, ESG ratings and investment fund holdings to be combined with financial data sets to support a range of propositions to resonate with people.
While millions of people are in the same default fund, a provider could share personalised communications based around members' preferences. For example, two members invested in the same default fund could receive different digital annual statements: highlighting the amount of renewable energy generated, or tonnes of waste diverted from landfill for a member with environmental concerns, while another member in the same default hears about improvements in diverse board representation or gender pay gaps. Across millions of members, or retail investors, those same preferences could inform future proposition development around thematic default funds or retail investment funds based around the UN Sustainable Development Goals. Examples are emerging through The Big Exchange (co-founded by The Big Issue) and tickr.
An aggregated view of someone’s personal finances is an essential part of sound financial planning. Including ESG ratings and fund holdings into this view helps informed decision-making and sound investment diversification. For example, a holistic view of pension, ISA and general investment accounts could reveal a concentration in particular sectors or firms. Sugi is the UK's first app to check the carbon impact of investments and compare investments across a range of funds and platforms to help consumers’ build a greener portfolio.
Read more about Sugi here
With the data capabilities in place, Open Finance enables firms to cost-effectively deliver a level of personalisation and insight to consumers previously the preserve of conversations between high-net worth individuals and their wealth managers.
Companies such as Co-Go are already integrating carbon and transaction data to create a carbon footprint tracker for everyday spending. Elsewhere, integrating utilities bill data could show the real payback for a green retrofit of your home, for example.
For asset managers, these alternative data sets can not only inform future proposition development around thematic default funds or retail investment funds, they can also be used in equity and fixed income research. More than $30 trillion - which is more than a third of the world’s professionally-managed assets - are in ESG and impact investments. Yet, as noted in a recent Columbia Threadneedle report, ESG data has been hampered by a lack of verification as researchers have relied on voluntary disclosure in annual financial and CSR reporting. Open Banking and Open Finance could provide “alternative datasets” to help “minimise reliance on voluntary disclosure”.
Hannah is a Client Director with senior industry experience in financial services, telecoms, public and not-for-profit organisations. Hannah has co-authored policy papers including “Pensions for the Next Generation: Communicating What Matters” and has consultancy experience in sustainability, responsible investment and social enterprise. With two Masters (Economics and Sustainable Tourism), Hannah is on the EMBA programme at Cass Business School and Women in FinTech Powerlist 2019.
Two years ago, something pretty special happened in the world of payments. At a conference, Moneyhub COO Dan Scholey facilitated the first ever PIS Open Banking payment by a member of the public, live. Fast forward two years (almost to the day) and we’re thrilled to launch another world first with our Open Banking powered QR code payments with Gift Aid.
Large, established, trusted brands, rich with data and with millions of loyal customers, are perfectly placed to use Open Finance technology to create more engaging and impactful customer experiences. Open Finance allows them to create hyper-personalised products and services, delivering a more holistic and supportive customer relationship and extending the customer lifetime value.
Digital technology has transformed almost every aspect of our daily lives; from the way we talk to the way we travel, eat, shop and do business. The proliferation of smartphones and subsequent cultural shift to an on-demand society has even influenced the way we view our health.
As the costs of traditional healthcare continues to soar and plague governments around the globe, the price tag of digital technology drops by the day, offering an obvious solution to the problem. Thanks to the development of digital health platforms and remote monitoring apps, people are increasingly turning to the myriad of services that allow them to self-manage their health and wellbeing, alert professionals to changes in their condition and receive efficient, cost-effective support at the drop of a hat.
According to a Salesforce survey, 6 out of 10 millennials support telemedicine, such as video chats, instead of in-person visits. Even more respondents stated their preference for mobile apps that could allow them to book appointments, review health records and manage their preventative care, while most were happy to consider wearable devices that share health data with their doctors, as well as pills that track vital signs once swallowed.
These findings serve to illustrate the shift in attitude and behaviour that has taken place with the younger generations in particular. Given the chance to take their health into their own hands via digital monitoring platforms, millennials are happily obliging. It’s hardly surprising - after all, they have come of age in an era where everything is available at the tap of a screen, and as an age-group that some have dubbed the most stressed generation, it’s no shock to see them turn to the digital solutions available to quell their health anxieties.
Having witnessed the digital revolution of the healthcare sector, finance and savings would be wise to follow suit. Taking a page from the digital health solutions book, the finance industry can learn lessons from the move towards self-management in healthcare to make finance something that people engage with daily, are committed to and find motivating.
While it still may be early days for open banking in the UK, regulatory activity has spurred a thriving FinTech industry and given way to a first generation of open banking solutions that allow users to securely share the information with whoever they chose in order to receive a 360-degree view of their finances. With access to both current and savings accounts, such platforms could completely change the way all of us interact with our money and support our financial wellbeing by providing us with an on-demand solution for both short and long-term money management.
Just like video-chats have gained momentum for younger patients, the idea of visiting a bank branch is an antiquated thought to most millennials. If health can be managed digitally, 24-7 real-time access and service from financial service providers is something that consumers have come to expect; performance for these organisations is measured not by the service of their physical branch but their self-service capabilities.
Technology has inspired a shift in attitude with regard to the way people view their health; it has put personal health monitoring into the palms of our hands and inspired us to live healthier lifestyles through real-time progress tracking. As a result, Millennials and Gen Z are more engaged with their health than any previous generation; their need for instant information disrupting the provision of healthcare to enable individuals to take control of their health and wellness at the tap of a screen instead of a trip to the doctor.
Indeed, recent research into this subject found that health apps and wearable devices have acted as tools for Millennials to improve their own health, with adoption rates among this generation far outpacing older generations (27 percent app, 8 percent wearable compared to 12 percent and 4 percent) When surveyed on what they would like to see from health-tech tools in the future, the main theme for Millennials was centralisation, integrating self-generated health data with that of the information held by a range of providers to allow ubiquitous access from a single location.
This highlights a wider trend in the demands and expectations of younger generations: technology has enabled them to track their health at a granular level and track progress in real-time and, as a result, they are empowered to take action to improve their diet and lifestyle. Wellness has become a daily, active pursuit for millennials; they are eating healthier and exercising more than previous generations. On the flip side, attitudes towards finances remain much the same, and while some are taking advantage of new platforms to manage their money, most still see their bank account as something to ignore until payday.
The positive, proactive attitude that young people have towards their own health cannot be carried over into the world of money management, however, until key players in the finance sector embrace the potential of technology and regulatory change to transform how we view and manage our savings.
Just like healthcare practices, banks and financial service organisations are under mounting pressure to reduce costs and improve service quality. And, just like the healthcare industry, a similar opportunity exists in finance to transform the user experience and revolutionise the way people manage and view their money. If finance took the same approach, people would undoubtedly feel more connected with their money.
Given the ability to view their spending behaviours, incomings, outgoings and savings all within the same place, users would be inclined to make positive changes to the way they spend and save. While more needs to be done to educate the market on the benefits of open banking, the development and proliferation of such products and services is certainly a step in the right direction.
Whether you want to create your own solution, or you want us to do it for you—we have the technology for it. Our experienced team is here to support you now and in the future.
