Challenge
Financially vulnerable consumers
Many people who are in debt are also financially vulnerable. This means they may struggle to effectively manage their money, be more likely to spend erratically, or lose track of their finances, incurring further debt. They are also less likely to have savings.
People can experience financial vulnerability at any time – it can be triggered by life events such as divorce, job loss or bereavement, as well as serious illness or mental health conditions. The FCA's 2022 Financial Lives Survey revealed that 47% of UK adults showed at least one characteristic of vulnerability.
The financially vulnerable are also more likely to be affected by the poverty premium – paying more for their essential products, bills, and services than wealthier households.
Solution
Spending analysis
While financial vulnerabilities are both complex to identify and to resolve, there is potential for open banking technology to help.
For instance, if a customer has opted into open banking, their transaction data can be combined with traditional data to analyse spending patterns and identify erratic spending, or ‘financially destructive’ borrowing.
With the appropriate consents, this behaviour can be highlighted to the individual or a trusted contact, allowing them to address the problem, or be signposted to tools and services that can help them take control of their finances, improve their financial health, or access more cost-effective credit more quickly.
For example, there are open banking apps that can quickly check eligibility for benefits and calculate forecasts so you can see precisely how cost of living increases affect your household.
Solution
Find financial help
Conclusion
Although there are currently more than 7 million people in the UK using open banking-enabled products and services, the technology has barely scratched the surface. As cost of living increases continue to bite, we expect the insights offered by open banking transaction data to play an increasingly active role in delivering cost-effective borrowing, signposting users to debt management services faster and supporting switches to affordable energy tariffs. At the same time, open banking tools and services such as account dashboards, spending trackers, and savings apps can all help consumers take control of their finances, and get more out of the money they have.
The organisations and charities below offer free, independent support with your finances.
