Why is Open Banking crucial in tackling cost of living crisis?

By Puja Sharma

Open Banking has a vital role in the cost of living crisis, as estimated 25 million brits fear income soon won’t cover essential spending. As the cost of living crisis continues, new research from Europe’s leading open banking platform, Tink, paints a stark picture of financial realities in the UK.

Findings reveal almost half (46%) of people in the UK are ‘only just managing’, where they expect their income not to cover their essential spending in the future. A further one in four  (23%) are identified as ‘financially vulnerable’, with their current income already no longer covering their essential spending.

Based on the findings, this represents an estimated 37 million Brits who are currently either experiencing or expecting to face financial distress – highlighting the critical role of banks to support people with their finances during these unprecedented times.

Brits trying their best to budget

Many Brits may be worried about how to get through the coming months, but findings suggest they’re doing what they can to proactively manage their finances. Almost three in four (72%) of those considered ‘only just managing’ believe they have a clear view of their finances, and two-thirds (65%) say they try to keep on top of their expenditure but struggle to keep up with constant price increases.

However, the findings show that many are not able to make the most of the digital tools that could help them. Almost half (48%) of the ‘only just managing’ say they are using basic online banking tools, suggesting banks have an opportunity to educate people about more sophisticated digital tools to help them budget better.

Meanwhile, one in four (24%) of the ‘only just managing’ still prefer to manage their finances manually. Here, banks can find ways to support these customers and build their confidence in transitioning to managing their finances digitally, while highlighting the benefits of personalised financial tools.

Banks: the opportunities and expectations

There is a clear appetite among consumers for products, services, and tools that will help them improve their finances, as over half (55%) of those ‘only just managing’ agree banks should provide financial support to customers during the cost of living crisis.

For instance, over one in five (22%) of those ‘only just managing’ would like their bank to actively show them which providers have better deals and where savings can be made. A similar amount (22%) would also like their financial providers to suggest where they could be spending less each month.

With the UK’s Current Account Switching Service (CASS) reporting a record quarter for bank account switching, it’s clear more people than ever are willing to move their money for a better deal. The current economic context provides both an opportunity and a challenge for banks. Tink’s research reveals over a third (35%) of those ‘only just managing’ would switch banks to one that provided them with tailored financial support, and a further 44% would jump ship to a bank that provided recommendations on where they could save on spending

Tasha Chouhan, UK & IE Banking Lead at Tink, commented on the research: “There is a clear opportunity to offer more support to struggling Brits as we deal with the biggest drop in income witnessed for decades. With the success of open banking, banks are today in the best possible position to embrace data-driven technology to develop tailored support, tools, and communications. This will enable people to better manage their finances during difficult economic times while improving customer engagement and shoring up long-term loyalty.”

Key Insights

• An estimated 25 million Brits (46%) are ‘only just managing to scrape by financially, fearing their income soon won’t cover their essential spending, based on new research from Tink
• A further estimated 12 million (23%) are already unable to make ends meet as their income no longer covers their essential spending
• Clear appetite for support, as 44% of ‘only just managing’ would switch banks to one that provided recommendations on where they could save on spending
• Findings reveal opportunity for banks to use data-driven technology to provide tailored financial tools for consumers, as well as shore up loyalty