How Open Banking and Open Finance Empower True Financial Strength

Two-thirds of Americans say they experience financial hardship at least occasionally, with 19% saying they experience it somewhat regularly and 15% saying they experience it almost constantly, according to an MX survey of 1,000 U.S. consumers. 

How can financial services companies help these people build financial strength?

One way forward is to implement direct API connections that serve as the basis for open banking and open finance (which extends these connections beyond financial services companies). To offer the best money experience, companies should offer modern connectivity — tokenized, credential-free connections that use OAuth 2.0 protocols. This way, customers enjoy a level of speed and security that’s unparalleled.

To be specific, Open Banking and Open Finance enable the possibility of bringing all of a person’s financial accounts — checking, savings, loans, investments, etc. — together in one place. 

With this ability can financial services companies truly help people with their financial strength. After all, if you have a partial dataset, you might incorrectly nudge an individual who is buried in credit card debt to aggressively invest in their 401(k) account, hurting their financial strength in the process. Or you might suggest that an individual should put money in a savings account when in reality they should be getting a match on their 401(k). 

The key to helping people reach financial strength lies in having the ability to see your customers’ full financial picture. Only once you have that view can you provide automated financial guidance at each step. 

You might help your customers earn more money by connecting them to on-demand jobs, based on their exact financial needs, in the vein of apps such as Stoovo and Steady. Or you might help customers automate their spending habits and display their spend-to-income ratio, pointing out ways they can cut non-essential costs.

The key, then, is to couple a financial management app with automated financial guidance that’s individualized for the needs of each customer. Of course, this is only possible with data that has been cleansed, categorized, and augmented — allowing algorithms and end users to instantly understand how much is being spent and where. Without enhanced data, automated financial guidance based on personalized needs is a non-starter.  

You might also implement an automated “slide to save” product that nudges customers on track bit by bit toward true financial strength. To illustrate: at the beginning of the COVID-19 pandemic, BECU identified a segment of its members who did not have automatic savings set up and likely needed help finding ways to save money. To address this, BECU implemented a Quick Save feature in their mobile app, which allows members to easily transfer funds to their savings account by using the 'slide to save' panel on their dashboard. By making the act of saving as simple as a swipe, BECU helped their members build a savings habit. To date, Quick Save has helped members transfer more than $1.5 million into savings accounts.

More than anything, the key is to create an experience that’s engaging and delightful so your customers have an incentive to keep coming back to your digital offerings. If you can show customers that you’re invested in their long-term interests, you can spark the motivation they need to stay committed to their financial goals.

But all of this only scratches the surface of what’s possible with the right approach to helping customers reach financial strength. With open banking and open finance connections, financial services companies can also help with lending, long-term financial planning, insurance, and investments — leading to true financial freedom.

To learn more, read the Ultimate Guide to Open Banking.