In recognition of Debt Awareness Week, Lubaina Manji, Senior Programme Manager, Nesta Challenges, explores how open banking has enabled fintech to provide a new set of tools to alleviate debt
In these unprecedented and uncertain times that we are currently facing, economic survival will be a primary concern for many people. UK households are already heavily reliant on debt: according to The Money Charity, the average total debt per UK household at the end of 2019 stood at an eye-watering £60,213. We are also a nation dependent on credit – whether it’s personal loans, car finance or credit cards, the TUC estimates that UK homes now owe an average of £15,385 to credit card firms, banks and other lenders. The Financial Conduct Authority (FCA), meanwhile, has highlighted that 78% of UK adults hold at least one credit card or loan.
In light of this increasing financial strain, and with additional pressure felt from the current crisis, too many people are becoming stressed and desperate. In the build-up to this year’s Debt Awareness Week, research conducted in January from the Open Up 2020 Challenge, which is run by Nesta Challenges in partnership with the Open Banking Implementation Entity (OBIE), revealed that one in four (27%) respondents feel uncomfortable about their level of debt but 39% are unsure about where to turn for help.
Money management with fintechs
In order to help with these problems, a number of UK fintechs have developed a range of solutions to alleviate debt and help with money management. Open banking has laid solid foundations for a range of innovative apps that allow people to take control of their financial data and find ways to better manage and clear their debt, provide support to make financial plans, increase their financial wellbeing, reduce their uncertainty from one month to the next and throw them a lifeline at times of crisis e.g. self-isolation. It has given people the chance to get personalised, tailored support to help them manage their money by allowing agile, regulated fintechs to securely analyse this data to create a path forward.
The consumer appetite is certainly there – 47% of respondents to the survey commissioned by the Open Up 2020 Challenge said that they would be happy to use apps to take firmer control of their financial situation.
Matching this demand is a range of new products that leverage the open banking landscape to help people better manage and clear their debt. One such solution is Tully, a digital debt adviser for those struggling financially. It provides online budgeting, debt advice, flexible repayments and money coaching to alleviate financial stress.
Another one to watch is Updraft, which automates the day-to-day decisions involved in managing money. It’s specifically designed to help millennial users clear their overdraft, pay off credit cards and save more.
Then there is Cleo, a financial assistant with personality and intelligence that is already helping over three million customers to reach their financial goals. As part of a broad range of services, Cleo offers an up to £100 interest-free salary advance to help its customers avoid excessive bank charges.
These three fintech start-ups are amongst the Open Up 2020 Challenge’s 15 finalists, who have already received £50,000 in funding. Between three and four winning finalists will go on to receive a further cash injection so that they can help even more people to manage their money.
As open banking becomes established, it’s crucial that people are aware of the emerging tools and apps that are available to help them battle their debt and navigate through these uncertain times. Open Up 2020 was created to encourage the development of innovative solutions that use open banking to bring to life ideas that have the potential to improve people’s relationship with money.
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