Helping the financially vulnerable through open banking

Guest blog by Adam Williams, senior personal finance journalist at Daily Telegraph

There are many reasons a person may be considered financially vulnerable. Often this is down to age or health problems, but may also be because of short-term financial events, such as being made redundant or working fewer hours each week.

Those who struggle with numeracy and financial jargon are also particularly at risk.

But vulnerability is not limited to these groups. Research published by the City watchdog, the Financial Conduct Authority, earlier this year estimated that as many as 50pc of the population can be considered vulnerable at any one point.

Apps which take advantage of the Open Banking regime can help these groups manage their finances when they need support the most. Free tools can help users budget each month and ensure money is held in the right accounts, potentially avoiding overdraft fees. If all of their accounts are visible in one place it will also make it easier for people to move their cash into savings accounts where appropriate.

In time, apps may be able to move this money automatically, making it easier for people to save.

This digital exclusion gap must be closed before the power of Open Banking can truly be harnessed

As the industry develops, detecting fraudulent activity should become easier. With a better perspective on a user’s financial life, transfers to unknown payees or of unusual size or frequency should be more apparent.

Open Banking technology can also help consumers themselves spot potential fraudulent activity. If all of their accounts are visible in one place, it is easier to identify suspicious transactions or rogue payments being made. While use of online banking has increased rapidly in recent years, often there are secondary bank accounts which are not checked as regularly and can become an easy target for fraudsters.

But there are significant hurdles that the industry must meet first, this includes trying to reduce the levels of digital exclusion. Older and vulnerable people are more likely to avoid internet and app-based banking services, often because they do not trust or do not understand what is being offered.

Replacing the confusing array of usernames and passwords with photo or fingerprint verification should make it easier for vulnerable people to bank digitally. But for trust to be built, providers must ensure that apps meet the most rigorous data protection standards.

Breaches at individual firms can damage the reputation of the whole industry.

This digital exclusion gap must be closed before the power of Open Banking can truly be harnessed. But the potential benefits to consumers is vast.

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