How open banking democratises financial services for twenty million underserved consumers

Written by Yapily · June 7th, 2022

Twenty million are still financially underserved with another nine million on the cusp of financial fragility. How can open banking change the narrative by enabling fairer financial services?

Financial services are the beating heart of our economy. But they’re not nearly as accessible as they ought to be. For twenty million individuals with little to no credit, something as simple as taking out a credit card is a struggle. For the millions left out in the cold, sub-prime lenders with expensive credit terms are the only option.

Fintechs are faced with an opportunity to make banking fairer for the underserved, shaping a world where financial services work for everyone. Open banking is a key enabler behind this. Democratising access to consumers' financial information and allowing fintechs to develop services that truly help bank the unbanked.

What financial exclusion looks like

From young people with no credit history to expats struggling to open a bank account, 5 million individuals are invisible to the credit system. On top of that, another 15.6 million with poor credit history struggle to access basic financial services.

Considering a credit score is a fundamental deciding factor when applying for a credit card or loan, it disregards millions who are either still building or repairing their credit history.

Payday loans are a tempting quick fix for those in a financial predicament. Around 760,000 people take out a payday loan every year to tide them over. Some with annual rates that run into the thousands of percent.

Aside from creating debt, payday loans can appear as a red flag to a number of traditional lenders, damaging credit scores by giving the impression of poor money management.

As the cost of living crisis continues, another nine million are on the cusp of financial fragility. This means they're more likely to use their overdraft to pay for everyday essentials, leaving them trapped in a cycle of overdraft reliance.

The Financial Conduct Authority discovered nearly 13 million people are overdrawn annually, putting pressure on their income and their financial wellbeing. Unless financial providers put customers’ needs at the heart of their borrowing decision, more people will be at risk of becoming underserved and undersupported.

The shift to financial inclusion

To help the five million become credit visible, and the 13 million repair their credit, lenders need to change the way they assess creditworthiness and promote ethical lending practices.

Open banking enables lenders to undertake a tailored check on applicant’s creditworthiness by accessing real-time income and expenses insights. This ensures only those who can afford a loan are granted one, consequently helping individuals achieve greater financial wellbeing.

Digital banking platforms are filling the space created by incumbent banks by offering the underserved better access to financial services. As the world moves away from cash-based transactions, virtual payment cards that provide a better overview of spending can help consumers regain control of their money.

Personal finance apps with budgeting features are another powerful tool that inspires customers to engage with their money. Aggregating consumers’ financial data across their current accounts, credit cards, loans and subscriptions enables them to view their spending and expenses in one place.

Salad Money: Changing the lives of 13,000 key workers

Key workers are a large segment of the underserved population who often rely on sub-prime lenders to supplement their income. One study reveals that thousands of NHS workers have relied on short-term loans in the past charging up to 1333% interest.

Salad Money is determined to change this, so far lending over 13M to key workers by leveraging open banking data. With Salad Money, key workers can:

  • Apply for a loan regardless of their credit score
  • Receive money in their account within 24 hours of approval
  • Curate a tailored loan repayment strategy

Yonder: The credit card that doesn’t need a credit score

For the 13 million still repairing their credit history, there’s a new way to get a credit card without needing a score at all.

Challenger credit card Yonder leverages open banking to ditch the credit scoring system in favour of real-time financial insights. Yonder pulls data directly from a bank account to build a holistic credit profile, analysing income and expenses to assess true creditworthiness. With Yonder, customers can:

  • Start a credit report from scratch
  • Build or repair their credit score
  • Earn points when they spend
  • Spend their points on experiences

Building an inclusive financial future

Open banking is accelerating financial inclusion by providing fintechs with the infrastructure they need to build more personalised and cost-effective solutions.

Through the power of open banking, twenty million underserved consumers can apply for a credit card or a loan without the need for an already developed credit history. Moreover, they can regain control of their spending with the helping hand of a personal finance app.

By putting financial services into the hands of everyone, the underserved and financially fragile can work towards building a better financial future for themselves.

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