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Fintech Will Create a More Open Economy

 6 min read / 

“Robots will destroy our jobs – and we’re not ready for it”, according to a Guardian headline.

“1 million jobs will disappear by 2026”, says a CNBC report.

While anyone paying close attention to the newspapers or TV news channels recently is probably petrified by the looming spectre of the new tech, there are lots of reasons to be positive.

And one of them is that financial technology looks set to make the economy more inclusive with Open Banking in the UK being a prime example.

What is Open Banking?

The new Open Banking regime was recently launched in the UK to great fanfare. At its most basic level, it gives customers back control of their banking data, and, crucially, who it is shared with. The UK’s big nine banks have been effectively forced to allow third-parties to hook into their customers’ data, but only if the customers give permission.

This is important because for the first time ever this data has been freed from the hands of a handful of banks. If a customer chooses, they can make their banking information accessible to new tech startups who might have an innovative use for it.

To take one example, credit reference agencies, such as Equifax, currently have a tight grip on credit data. So, despite high-profile scandals like the Equifax leaks, consumers are captive to these companies. Open Banking solves that immediately. Consumers can give startups direct access to their banking information to evaluate their creditworthiness much more accurately.

As the UK’s City Minister, John Glen, has said:

“Those [data] flows untap greater financial prospects for a broad range of people and allow them to access new products and services, such as innovative investment opportunities, tailored and appropriate debt products, and technology-driven solutions such as open banking.”

Open Banking and Inclusivity

But how does this relate to robots, automation and jobs?

One of the criticisms of this introduction of new technology is that it will create a two-tier, divided economy; that people at the bottom of society will end up losing their jobs while those at the top benefit the most.

This could not be further from the truth. In fact, Open Banking has already made finance much more accessible to everyone in society. One of the most economically and socially damaging things to society is that many people cannot access even basic financial services. According to the Financial Inclusion Commission (FIC) in the UK, there are still 1.5 million adults in that country without a bank account.

And of those who do have a bank account, many do not have access to affordable credit. As sources of borrowing contract, the stats show an increase in the incidence of illegal borrowing. According to the FIC again, the number of illegal moneylenders in the UK is estimated to have risen from 165,000 in 2006 to 310,000 in 2010. That number could be much higher now, according to government figures.

The figures are similarly stark in the US. In fact, as many as 10 million US citizens do not have a bank account.

The Examples of Safety Net Credit and Iwoca

But this is the type of problem where technology really comes into its own; it is very good at solving so-called ‘distribution problems’, getting things to people, and making things much cheaper.

In the UK, for example, one company which is taking advantage of Open Banking to improve financial inclusion is Safety Net Credit.

Safety Net Credit accesses their customers’ bank accounts via Open Banking to quickly build a very accurate picture of their financial lives, much better than blunt credit reference agencies, which often end up excluding people at the bottom of society from accessing credit.

And by being able to understand people better, Safety Net Credit has been able to extend their customers credit when needed without them having to resort to costly overdrafts, or something even worse.

Jonathan Davidson, Director of Supervision (Retail and Authorisations) at the FCA, recently backed up this up:

“The effects of [Open Banking] are potentially radical. I was talking to someone recently who had a permission to provide consumer credit unsecured loans and had recently received their Payment Services Directive (PSD) permission to access the accounts of customers.”

“The business had 500,000 customers and access to 1m bank accounts. He set up a business model where if his customer was about to go into overdraft the app would see this via their access to the clients bank account and lend that customer money. It was a win for him to lend money profitably and a win for his customers who got to borrow at a much lower rate than on overdraft.”

Another company who is using a similar technology is iwoca, but rather than use Open Banking to provide individuals with finance, they do it for business.

Up until recently, small businesses had to go through an arduous process of submitting pages and pages of physical documentation to get access to financing and expand their businesses and take on new employees. Anyone who runs a small business will know how painful that process is.

But by opening up direct access to bank accounts, iwoca is able to almost instantly decide whether they can support a business’s development.

Technology has the power to positively transform our businesses and our economy. It has the power to make products and services available to more people at an affordable price; as has already been seen that with retail through Amazon and entertainment through services like Netflix and Spotify. Now that tech revolution is starting to have an effect on finance too.

So rather than always raising a sceptical eye at the latest technology, people need to engage with it positively. The world needs to embrace it.

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