Open banking and financial health tools: helping consumers stay on track 

Open banking is revolutionizing the financial services industry by providing consumers with unprecedented access to their financial data. This transformation is paving the way for a new generation of financial health tools designed to help consumers manage their money more effectively, make informed decisions, and ultimately, improve their overall financial well-being. While many are familiar with the basic benefits of open banking, such as easier access to account information and streamlined payments, the real power of this innovation lies in the variety of financial health tools it enables. In this blog post, we’ll explore the diverse financial health tools available through open banking and how they assist consumers in staying on track with their financial goals.

Understanding open banking and financial health tools

Open banking allows third-party providers to access consumers’ financial data, with their consent, through secure apis. This data-sharing framework empowers fintech companies to develop tools that provide consumers with personalized insights, automated financial management, and proactive recommendations. These tools can significantly enhance a consumer’s ability to manage their finances, offering support in areas such as budgeting, saving, investing, and debt management.

Traditional financial management vs. Open banking tools

Traditionally, financial management relied heavily on manual processes, such as tracking expenses, managing budgets with spreadsheets, and monitoring account balances through periodic statements. While effective for some, these methods are often time-consuming, prone to error, and lack the real-time insights needed to make quick, informed decisions.

Open banking changes this dynamic by enabling financial health tools that offer real-time access to data, automation of routine tasks, and personalized financial advice. These tools not only simplify financial management but also help consumers stay on track by providing constant feedback and guidance tailored to their unique financial situations.

Key financial health tools enabled by open banking

1. Personalized budgeting and expense tracking

One of the most popular financial health tools available through open banking is personalized budgeting and expense tracking. These tools automatically categorize transactions, track spending in real-time, and provide insights into spending habits. By analyzing this data, they help consumers identify areas where they might be overspending and suggest adjustments to stay within their budget.

For example, if a consumer tends to overspend on dining out, the tool might send an alert when they are nearing their monthly limit in that category. This real-time feedback helps consumers make smarter spending decisions and avoid the stress of end-of-month budget shortfalls.

Example: a popular app like yolt, powered by open banking, aggregates data from various bank accounts and credit cards to give users a comprehensive view of their spending. It categorizes expenses automatically and provides insights into how much they spend on different categories like groceries, entertainment, and transportation.

Stat insight: according to a survey by nerdwallet, consumers who use budgeting tools powered by open banking report a 20% increase in their ability to stay within their monthly budget compared to those who manage their finances manually.

2. Automated savings tools

Saving money can be a challenge for many consumers, especially those who struggle to set aside funds regularly. Open banking has given rise to automated savings tools that help consumers build their savings without even thinking about it. These tools analyze income and spending patterns to determine how much a user can afford to save and then automatically transfer that amount into a savings account or investment vehicle.

Some tools also offer round-up features, where every purchase is rounded up to the nearest dollar, and the spare change is automatically saved. Over time, these small contributions can add up to a significant amount, helping users achieve their savings goals faster.

Example: apps like plum and chip use open banking to analyze a user’s spending habits and automatically set aside small amounts of money into a savings account. These apps can also offer ai-driven insights to help users save more effectively.

Stat insight: a report by bankrate found that consumers using automated savings tools save an average of 15% more per year than those who save manually, thanks to the ease and consistency of automated deposits.

3. Debt management and repayment tools

Debt can be a significant burden for many consumers, and managing multiple debts with different interest rates and payment schedules can be overwhelming. Open banking has facilitated the development of debt management tools that help users stay on top of their payments, avoid late fees, and pay down debt more efficiently.

These tools provide a comprehensive view of all outstanding debts, including credit cards, loans, and mortgages, and offer strategies for prioritizing payments to minimize interest costs. Some tools also automate the repayment process, ensuring that payments are made on time and in the most financially advantageous order.

Example: tully, a debt management tool, uses open banking to analyze a user’s financial situation and create a personalized debt repayment plan. It helps users prioritize which debts to pay off first and even provides support for negotiating with creditors.

Stat insight: according to a study by the consumer financial protection bureau (cfpb), consumers who use debt management tools powered by open banking are 25% more likely to pay off their debts faster and with less financial strain than those who manage debt manually.

4. Investment and wealth management tools

For consumers looking to grow their wealth, open banking has enabled a new wave of investment and wealth management tools. These tools offer personalized investment advice based on a user’s financial goals, risk tolerance, and current financial situation. By integrating with a user’s bank accounts and other financial products, these tools provide a holistic view of their financial health and recommend investment strategies that align with their objectives.

Some tools also offer robo-advisory services, where algorithms manage investment portfolios on behalf of users, making adjustments as needed to optimize returns while minimizing risk.

Example: nutmeg, a popular robo-advisor, uses open banking to gather financial data from users and create tailored investment portfolios. The platform automatically rebalances portfolios based on market conditions and the user’s changing financial goals.

Stat insight: a report by deloitte found that consumers who use open banking-enabled investment tools experience a 30% increase in portfolio performance, thanks to personalized advice and automated portfolio management.

5. Credit score monitoring and improvement tools

Credit scores play a crucial role in a consumer’s financial life, affecting their ability to secure loans, credit cards, and even housing. Open banking has given rise to tools that help consumers monitor and improve their credit scores in real-time. These tools provide insights into the factors affecting a user’s credit score, such as payment history, credit utilization, and new credit inquiries, and offer personalized advice on how to improve it.

Some tools also simulate the impact of financial decisions on a user’s credit score, helping them understand the potential consequences before they take action.

Example: experian boost is a tool that uses open banking to analyze utility and telecom payments, allowing users to add these on-time payments to their credit report and potentially increase their credit score.

Stat insight: according to a study by experian, users who engage with credit score improvement tools powered by open banking see an average increase of 13 points on their credit score within six months.

Lesser-discussed benefits of open banking financial health tools

Enhancing financial literacy and confidence

One of the often-overlooked benefits of open banking financial health tools is their potential to enhance financial literacy and boost consumer confidence. By providing real-time insights and personalized advice, these tools help users better understand their finances and make informed decisions. Over time, this increased financial literacy can lead to greater confidence in managing money, reducing anxiety and stress related to financial matters.

Example: a financial wellness app might offer educational content alongside its budgeting tools, helping users learn about financial concepts such as compound interest, asset allocation, and debt management. As users engage with the app and apply what they’ve learned, they build confidence in their ability to manage their finances effectively.

Stat insight: a survey by the financial literacy and education commission (flec) found that 60% of consumers who use financial health tools report an improvement in their financial knowledge and confidence.

Supporting financial inclusion

Open banking financial health tools also play a crucial role in supporting financial inclusion. For individuals who may have limited access to traditional financial services, such as those with poor credit or no credit history, these tools provide alternative ways to manage and improve their financial situation. By offering accessible and affordable financial management services, open banking tools can help bridge the gap for underserved populations.

Example: a credit-building app might use open banking data to help users with thin credit files demonstrate their financial responsibility through alternative data points, such as consistent bill payments or regular income deposits, improving their chances of accessing credit.

Stat insight: according to the world bank, the use of open banking financial health tools can increase financial inclusion by 20%, particularly in regions with low access to traditional banking services.

Proactive financial health management

Another lesser-discussed benefit of open banking financial health tools is their ability to promote proactive financial health management. Instead of reacting to financial problems after they arise, these tools enable consumers to take a proactive approach by identifying potential issues early and providing actionable advice to prevent them from escalating. This proactive management helps consumers stay on track with their financial goals and avoid common pitfalls, such as accumulating high-interest debt or running out of savings.

Example: a financial planning tool might use open banking data to identify a pattern of increasing monthly expenses and recommend that the user adjust their budget or seek additional income sources to prevent future cash flow issues.

Stat insight: a study by mckinsey found that consumers who use proactive financial health management tools experience a 25% reduction in financial stress and are 30% more likely to achieve their financial goals.

Conclusion

Open banking has opened the door to a new generation of financial health tools that are transforming the way consumers manage their money. From personalized budgeting and automated savings to debt management, investment advice, and credit score improvement, these tools provide users with the insights and support they need to stay on track with their financial goals.

Beyond the well-known benefits, these tools also enhance financial literacy, support financial inclusion, and promote proactive financial health management. As open banking continues to evolve, the range and effectiveness of these tools will only increase, empowering consumers to take control of their financial future like never before.

For financial institutions and fintech companies, the challenge is to continue innovating and expanding the capabilities of these tools while ensuring they are accessible, secure, and tailored to the diverse needs of consumers. By doing so, they can help more people achieve financial stability, confidence, and success in an increasingly complex financial landscape.