Innovate Finance has launched a new forum to explore the potential of fintech to create a more inclusive and sustainable world. What good timing - fintech has performed impressively amidst the pandemic and will have a crucial role to play as restrictions are lifted and we settle into our ‘new normal’.

It’s origins go back to the creation of peer-to-peer pioneer Zopa in 2005, but the bulk of UK fintech was founded from 2010 onwards. As such, commentators would often say that we need to see how it performs during its first true economic downturn. Well, it’s fair to say that fintech has passed the COVID-19 test with flying colours.

To give one example, alternative lenders, such as Funding Circle and ThinCats, have played a vital role in delivering state-backed loans to UK SMEs, including the Bounce Back Loan Scheme (BBLS) and the Coronavirus Business Interruption Loan Scheme (CBILS). With the traditional banks creaking under unprecedented demand, AltFi.com research has highlighted just how important alternative lenders have been, with 60% of the 115 accredited CBILS lenders classed as an alternative. 

One of the most significant fintech contributions to the battle against the pandemic was Covid Credit, a platform built and brought to life over a single weekend, thanks to a collaboration between Fronted, 11:FS and Credit Kudos, that helped self-employed workers to prove a loss of income needed to claim government benefits. 

I find Covid Credit particularly impressive because it showcases the best of fintech - agility and collaboration - but also the potential of Open Banking to help fuel these new solutions. In this case, Open Banking technology and data was used to self-certify lost income, overcoming one of the main barriers to providing compensation.

Open Banking opens the door to better products and services

There’s little doubt that the UK’s leading position in the Open Banking movement has been key to unlocking fintech’s full potential. 

According to the Open Banking Implementation Entity (OBIE), more than three million UK consumers and businesses have now used Open Banking-enabled products to manage their finances, access credit and make payments. This is just the start - PWC predicts that this number will rise exponentially to 32.7 million by 2022. 

Thanks to this exploding consumer appetite, and the UK’s impressive digital infrastructure, in April 2021 the OBIE reported that there were 113 Open Banking products live in the UK, with 311 organisations licensed to deliver Open Banking in the UK market. 

Open Banking has empowered ambitious fintechs to deliver the financial products and services that customers want, and need, as they look to get themselves back on a firm footing after the pandemic. 

This is particularly true in the lending space, with consumers and small businesses alike long held back by stale credit reports and credit risk processes. Lenders of all shapes and sizes can now harness the data-rich Open Banking environment to run more accurate affordability checks that encompass real-time transaction data to provide a more holistic picture of risk and creditworthiness. This is helping them to extend their services to more people at a time when they need access to fair and affordable credit more than ever. 

Being able to access more suitable loan products has a massive impact on financial wellbeing and mental health, which is inextricably linked to money worries. Open Banking-enabled account-to-account (A2A) payments, meanwhile, are making the payment of debts easier and less embarrassing, removing human interaction and allowing people the option of simply authenticating the payment in their familiar banking app. In the UK, one in four credit cards can now be paid off using an A2A payment. 

Open Banking has also prompted a raft of new innovative apps that help people to budget and save. This includes Cleo, an artificial intelligence (AI) assistant with a sharp sense of humour that offers tips and tricks on social media to help younger people to budget, save and track their spending. These are exactly the type of products that are needed to navigate the digitally-driven new normal. 

Embedded finance widens the field 

What’s really exciting is that it’s no longer just financial institutions and fintechs that can provide these next-generation financial products and services. 

The concept of ‘financial services-as-a-service’, where supermarkets, retailers and other brands can create and sell their own financial products by drawing on a few lines of code and APIs, is a prominent, growing trend, with Bain Capital estimating that embedded finance will be a $7.2 trillion market by 2030.

At Railsbank, we’re proud to be one of the companies facilitating the rise of embedded finance. In July 2021, we announced another $70 million in equity funding to help us to expand our footprint further as we build and provide APIs for ambitious brands keen to give their customers access to better financial services.

By deconstructing all financial products into their core digital components, we’re looking to do for financial services what Apple’s iTunes did for the music industry by deconstructing music into a single digital track. This approach makes embedding finance into apps and customer journeys as simple as drag and drop, meaning it’s never been easier for fintechs and other organisations to help their customers hit the financial high notes.