Thought Leadership

From open banking to smart data – time to get serious

07 September 2023
Thought leadership

Open banking is a necessary and important solution which can help us navigate the cost-of-living crisis.

Open banking-enabled products offer practical tools which help people to manage their money better and, in some cases, can even help alleviate associated mental health problems.

For small and medium-sized businesses, they can help support increases in productivity. But if we’re going to deal with the root cause of cost-of-living challenges in the UK, we need to move to smart data, and move sharpish.

The impact of the cost-of-living crisis is well-documented: inflation rose to a 41-year high in 2022 to 11.1%. The Trussell Trust reported a significant increase in the provision by food banks, and a series of interest rate rises has led to significant increases in housing costs.

The impact is felt most among people on low incomes and with debt. Covid had a disproportionate impact on people in poverty, especially those from certain ethnic groups and women. Cost of living challenges have exacerbated those inequalities, highlighting the importance of giving people tools to help build resilience.

Apps can help the financially vulnerable

A recent study commissioned by Urban Impact on Health shows how useful a variety of open banking apps can be in helping people in vulnerable circumstances understand their financial situation better. Many users reported greater clarity, reduced stress and feeling more ‘grounded’. 

Over £16m goes unclaimed in welfare benefits each year. One fintech platform uses technology to calculate benefits, and has integrated with a leading retail bank to help people access the benefits they’re entitled to. There are other apps which can help people find local grants and other support.

One alternative lender reports that it has been able to lend more than £4m to more than 3100 customers who do not have a credit score and would otherwise be excluded from borrowing. Open Banking Limited’s research highlights the importance of savings apps in creating new savers, and how small businesses are using open banking to improve efficiency and make better decisions.

“Data is central to better decision-making, planning, investment, and prosperity. Open banking has been a proud export. It’s doing good for people – and for businesses. But how much more could be achieved through open finance and smart data?” Faith Reynolds, Independent Strategic Adviser

Raising awareness of tools

But, as the Urban Impact for Health study highlights, more needs to be done to communicate the availability of tools. Many people are still unaware of what’s out there and how the different options can help them. It’s here that ecosystem participants can do more to embed complementary services and signpost effectively. Collaboration is essential.

The cost of housing was also mentioned by participants in the Urban Impact for Health report: “Addressing challenges with housing and earning enough to meet monthly bills were central to many of our participants’ financial, physical, and psychological well-being – ‘you can’t budget your way out of poverty.’”

We won’t solve these underlying issues of inequality without systems change – which looks at moving the relationships to deliver against different goals and outcomes. Widening open banking to smart data and moving towards a more data-driven society is essential if we want to grow economic wealth and reduce inequality – including the regional disparity in wealth.

Sharing energy data

Energy data initiative IceBreaker One learnt from open banking to create a trust framework that would allow stakeholders to share a variety of energy-related data. Its focus was on enabling organisations to share data to retrofit a housing estate to improve energy efficiency and reduce costs for the community of people living in those houses.

In the past, we’ve tended to view the benefits of open banking and open finance through an individual lens: how does it help individual consumers and individual firms? Now, it’s time to re-frame: how does opening up data help us as communities, regions and the UK as a whole? 

Data is central to better decision-making, planning, investment, and growing prosperity. Open banking has been a shining light, a proud export. It’s doing good for people, and for businesses. But how much more could be achieved through open finance and smart data?

Faith Reynolds is an Independent Strategic Adviser on fintech, open banking, open finance and smart data.