Saving is a critical element of managing our personal finances, and it tends to be the method that most individuals rely on, with investments being more financially exclusive in many respects. In fact, savings is arguably the first step in solving two key
issues, Financial Inclusion and Financial Wellbeing.
Somewhat worryingly, 1 in 10 Brits have no savings at all, while a third of Brits have less than £600 in savings. For people falling into these brackets, even a small change in their approach to savings could make a great deal of difference to their financial
wellbeing and provide a buffer of comfort to deal with life’s unexpected challenges.
Whether it is for a holiday, a house, or a Hoover, our customer research shows that over 70% of us regularly save for some sort of goal. Despite this, only 52% of us find it easy to save money.
So why are people struggling to save effectively today?
- Education: Financial literacy is the first hurdle when it comes to encouraging effective saving. Customers must have some level of knowledge around how and when they should save, before then consciously changing their behaviour and approach
to their finances in general (not just savings).
- Visibility: Most of us have no idea what our average monthly spending is, as we probably have multiple credit cards and current accounts to keep track of. To make informed saving decisions, customers need to have a single view across their
accounts and existing savings.
- Short term thinking: 10% more of us save for short term goals than for longer term life goals, such as buying a house. People tend to get so wrapped up in the immediate future that we find it hard to imagine a 5 or 10-year time horizon,
let alone prepare for it. Switching instant gratification behaviours to delayed gratification behaviours is a major barrier to encourage saving.
How could Open Finance solve some of the key issues with Savings?
Budgeting and forecasting tools
Open Banking has given rise to a whole host of budgeting tools that help customers to meet their savings goals.
Cleo provides insights into your savings and spending habits via a chatbot user interface, helping to change patterns of behaviour.
Moneyhub provides a tool within their platform that targets retail offers based on spending, helping customers to then move real savings that they make on purchases into a savings pot.
Additionally 75% of customers are calling for a tool that shows how their savings will grow over time – which will go a long way to shift behaviour from the short to long term. Envizage’s analytics engine goes the extra mile to create a comprehensive overview
of an individual’s financial future based on their current financial situation and life aspirations.
As many people don’t realise what they can afford to save, there’s great power in tools that can do it for them.
Chip uses existing Open Banking rails to connect to an individual’s bank account and automatically save money based on what the individual can afford.
Services, such as MoneyBox, round up individual transactions and save the difference (e.g. buying a £2.40 coffee means 60p is siphoned off into savings).
Interestingly, however, customers appear less inclined towards an app that automatically saves their money, possibly due to a desire to retain some level of control on how much they have available to spend at any time.
Automated product switching
The next natural advancement is to move customers’ savings to the account or product that is best for them.
Lumio is creating a tool that aims to automatically switch customers to the savings, investment and lending products that are best for them according to their complete financial picture, values, lifestyle and goals.
Similarly, Akoni’s cash management platform can identify the best location for a customer’s money based on their current situation and preferences. Importantly, via an API integration their solution can sit behind a provider’s interface – allowing the bank
or provider to maintain the customer relationship while Akoni makes sure the customer gets the best product for them.
“Open Finance has got a long way to go, and the true test will be when a bank starts selling another bank’s products because it’s the best thing for the customer” – Mark Hartley, Co-founder of Bankifi.
Open Finance considerations within savings solutions
- Marketplace gaming: Savings “marketplaces” must remain impartial to the products they advertise to ensure the best outcome for the customer.
- Switch friction: Providers are going to have to overcome the technical and legal friction of automated account switching.
- Trust: The industry has a long way to go to create a trust framework between the customer and the many different providers in the market.