Due to the success of open banking, it’s likely that we will see the development of open finance in the near future.
Open Banking: A Success Story
Open banking involves granting a third party access to your bank account. With your consent, this third party can access your payment account data and ask your banking provider to make transactions on your behalf.
The October 2021 Open Banking Impact Report found that 55% of Open Banking consumers agreed these services had helped them reduce their fees and costs and that 83% were willing to expand their use of these kinds of services.
On the whole, open banking seems to have been largely successful, and this has now opened the door to expansion into open finance.
Open Banking to Open Finance
Both open banking and open finance operate on the idea that individuals should be in control over who can access and use their financial data.
Open finance is simply an extension of open banking; it would enable wider sharing of this consumer data to more financial products and services, rather than it being confined to banking. So, rather than this data sharing solely involving things like payments, under open finance, it would also be applied to things like investments, insurances and mortgages.
The FCA’s Definition of Open Finance
Encouraged by the success of open banking, the FCA, government, and financial services industry have been considering the potential benefits of open finance… but what exactly is it?
[Open finance] is based on the principle that financial services customers own and control both the data they supply and which is created on their behalf. Re-use of this data by other providers would take place in a safe and ethical environment with informed consumer consent. This would mean that a financial services customer who consents to a third party accessing their financial data, could be offered tailored products and services as a result. Access would be provided by that customer’s current financial services provider under a clear framework of consent
How Might this Work in Practice?
Open finance would work on the foundation already established by online banking. It would work in a similar way, through data sharing to third parties, but it would simply cover a wider breadth of circumstances by collaborating across various financial services. According to UK Finance, this could potentially, “reduce fraud, improve financial wellbeing, widen access to credit, deliver greater choice in payments and help enable reusable digital identities.”
So, let’s have a look at a few examples of how this may look in practice for its consumers…
With open banking, consumers can see all of their account balances on one singular dashboard. With open finance, more financial products could be incorporated, so that the consumer could see their ISA, pension, mortgage, investments, and so on, all in one place.
Open finance also allows for even more personalisation. One example of this is lenders being able to offer mortgages based on the customers’ exact needs. Their service to the consumer would be personally tailored to them as an individual through data analysis of their accounts and finances.
Whilst open banking allows its users to authorise third parties making payments on their behalf, open finance could go even further, allowing consumers to link automatic transfers between different financial products, such as establishing recurring payments to pay off their mortgage.
by Red Star Wealth
New rules from the FCA mean first-time crypto investors will have to be offered a ‘cooling-off’ period, ‘refer a friend’ bonuses will be banned, and advertisements must have clear risk warnings.
New FCA Rules
As of 8th October 2023, those marketing cryptoassets to UK consumers will be obliged to offer a 24-hour cooling-off period. This means that new crypto investors will have to wait 24 hours before they can complete their transaction- if they change their mind, they can get their money back.
Sheldon Mills, Executive Director, Consumers and Competition at the FCA, has said:
“It is up to people to decide whether they buy crypto. But research shows many regret making a hasty decision. Our rules give people the time and the right risk warnings to make an informed choice”
Under these new measures introduced in October, ‘refer a friend’ bonuses will also be banned, and those advertising crypto will have to include clear risk warnings and ensure their adverts are clear, fair, and not misleading.
FSCS Consumer Research: Attitudes Towards Investing in Cryptocurrencies
According to FSCS research:
91% of consumers with savings or investments say they’ve heard of cryptocurrencies, yet only 11% have a good understanding of how they work… to find out more about what cryptocurrency is and how it all works, we have a blog just for you
80% of those with experience or open to investing cite reasons that can be grouped as being ‘swayed by the hype’ as a motivation to invest. In fact, 35% of all current, former or potential investors say friends and families encouraged them to invest… therefore, it’s significant that the FCA are banning these refer a friend bonuses, as some will invest in crypto just because those they know are trying to get them to
52% with experience or open to investing agree that they see crypto ads everywhere… given that these ads are so rampant, it’s more important than ever to ensure that any false or misleading advertising is cut out
23% would consider getting into debt to buy cryptocurrencies, increasing to 34% among under 25s and 29% of those with household incomes of less than £15,000… it could even be argued that part of the reason why people in debt are willing to buy cryptocurrencies is because it is advertised as a way to ‘get rich quick’. It can be easy to be misled into believing that crypto could be a way to get out of debt, but unfortunately, for many, it actually does the opposite due to its risky and unregulated nature
by Red Star Wealth
The Government has recently launched an 8 week public consultation regarding the regulation of the Buy Now Pay Later (BNPL) credit industry.
An Overview of BNPL
BNPL firms tend to offer short term interest free loans to enable customers to spread out payments for their purchases.
Because repayment instalments are free, BNPL financing can reduce consumers’ perceived risk of debt, encouraging them to spend money they don’t actually have.
BNPL financing is largely unregulated, with many consumers unaware of the potential consequences of missed payments.
The Stats…
According to Equifax, at least 15 million people in the UK currently use BNPL purchasing, with 1/3 of those spenders falling in the 20-30 age category.
Adobe Analytics found that purchases made using BNPL services made up 12% of online orders this January, compared to 10.7% in January 2022. We can clearly see that more and more consumers are turning to BNPL, seeking to spread the costs of their purchases due to being unable to afford them at the moment of buying.
The above graph, courtesy of Finder, illustrates the problems that arise with BNPL, with many turning to further borrowing to pay what they owe to these firms. This can be seen with 26% using their credit card to pay off BNPL purchases, 9% accessing their bank overdraft and 14% taking out other forms of loans (personal, payday and guarantor).
The Promise of Protection
Regulation of the BNPL sector has been discussed since 2021, so it is long overdue. As stated by Claer Barrett, author of What They Don’t Teach You About Money, “compared to the booming nature of Buy Now Pay Later, the pace of regulation has been glacially slow.”
As it currently stands, BNPL agreements involve minimal credit checks with a lack of requirement for lenders to supply important information about their loan agreements to borrowers. This enables consumers to get into a situation where they are borrowing more money than they can actually afford to repay.
This Tuesday, on 14th February 2023, ministers launched an 8 week consultation into the regulation of the BNPL credit industry. New proposals would mean BNPL products would be regulated by the Financial Conduct Authority, with consumers able to report complaints to the financial ombudsman.
Once given new powers to regulate the BNPL industry, the FCA will consult on rules for the sector to follow, such as mandatory affordability checks, licensing of operators, and fair marketing.
The Government has estimated that 10 million consumers could be protected from “unconstrained borrowing” as a result of these measures.
To access the consultation on this draft legislation of BNPL regulation, click here.
To read more about the dangers of BNPL purchases, check out this blog from our sister company.
by Red Star Wealth
Scammers have various ways of getting you to depart with your pension, and once you make that transfer, your retirement money is gone. Scammers can be very hard to spot; they know exactly what they’re doing. Let’s explore how you can protect your pension and reduce your risk of falling victim to these scams…
Warning Signs
Cold calling- since January 2019, there has been a ban on cold calling about pensions. Unless you’ve asked a company to contact you about your pension, they are not allowed to. So, if someone tries to get into contact with you out of nowhere regarding your pension, steer clear!
Claiming to know ways of avoiding tax or saving on tax- yes, tax can be frustrating, but it is there for a reason. We are sorry to say that there’s no loopholes here!
Promising limited time offers or one-off investments- if it sounds too good to be true, it probably is
Offering a loan or cash back from your pension- don’t be tempted by the promise of cold hard cash. It’s false
Rushing you to make decisions- take a step back and question why you are being rushed. If they are legitimate, why would you need to make a decision so quickly about money you’ve been putting away for decades?
Getting you to download software or apps- scammers may do this to gain remote access to your devices in order to access things like your bank details
Free pension reviews- as one of the most popular pension scams, this sounds harmless but it won’t end up being just a review at all
Claiming to help you access your pension before age 55- you cannot do this without ending up with a very high tax bill from HMRC
Offering complicated investment schemes- a good rule to follow is that if you don’t understand it, don’t do it
Putting your money into a long-term investment- scammers may use this tactic as you wouldn’t necessarily notice for years that there is something not right
Suggesting you funnel all of your pension pot into a singular investment- the investments most scammers persuade you to buy into are incredibly high-risk, meaning you risk losing all of your retirement savings. Most regulated financial advisers will suggest diversifying your investments to reduce risk
Protecting your Pension
Many pension scammers have convincing websites and online presences to make them seem like they’re legitimate. This is why it’s so important to take extra precautions with your pension.
Check the FCA register to check if they’re legitimate
Check the FCA Warning List to see the risks associated with a potential investment
Talk to a regulated financial adviser before transferring your pension
Check it isn’t a clone firm. Some scammers pose as legitimate firms by using their name but different contact details. Make sure you use the contact details which are on the FCA website to ensure you don’t fall into this trap
If you think you’ve been scammed, contact your pension provider to see if they can stop the transfer if it hasn’t taken place yet
Your pension pot is made up of your hard-earned money, so why risk losing it all? Take these precautions and watch out for scammers! If you have been a victim of a pension scam, contact Action Fraud to report it.
Click here to learn more from our sister company about protecting yourself from financial scams.
