What Is Open Banking and How Can It Help Me Get A Loan?

Since January 2018 the nine major high street banks are required by the competition and markets authority to allow current account customers to share their financial data. This new technology, called open banking, is creating new financial options for people by giving them a better understanding of their finances. Here we’ll explain why open banking is being used by financial institutions and what that means for you if you are thinking of applying for a loan.

What is Open Banking?

Open Banking is a secure way of allowing third parties like lenders or banks to look at the income and outgoings of your current account. This grants an organisation the opportunity to look at your financial information such as your spending habits: including the companies you frequently spend money with and the amount you put into savings each month.

How Does Open Banking Work And Is It Safe?

Open Banking means that you can securely share your

Without getting too technical, sharing your bank account information with a third party is made possible with two methods: through an API (application programming interface) or screen scraping.

Screen-scraping is the method that many of the small finance management apps use to gain access to your account. You have to give providers your login details to your online banking which grants them read-only access to your statements. They cannot edit your account without your permission. There are concerns that screen scraping could be easily exploited, leaving your data at risk.     

Open banking through an API is supposedly a much safer method. Put simply, an API essentially allows information to be shared securely from one party to another. This also means you don’t have to share your login information with anybody. 

Every financial service that utilises open banking technology is regulated by the Financial Conduct Authority (FCA), so they must go through rigorous assessments to ensure that they can securely handle their customer’s data. You do not have to share your bank account data unless you want to. Each provider must ask for your permission to access your financial information.

How Can Open Banking Help Me Get A Loan?

When you apply for a loan there a variety of different checks that you will have to go through before you are approved. One of these is a credit check, which evaluates your history of borrowing and repaying your finances. If you have had a recent spell of not being able to repay your credit commitments, your credit score could be lower and you may be deemed as not creditworthy. On the other hand, you could have a thin credit file, which means you haven’t proven that you’ve borrowed much money before. This is where open banking can help you get a loan. By allowing financial services to look at your recent transactional data means you can show that you can afford to borrow money if you don’t have any credit history. Rather than having to get your recent bank statements and send them in to be evaluated, you can now simply grant a lender read-only access to your bank account.

Equally, you may be unsure if you are able to even borrow the amount that you’ve applied for. By being, literally, open with your banking, a lender may be able to advise you how much credit you can borrow and for how long.

Which Companies Use Open Banking?

A wide variety of companies are now using open banking to help people manage their finances and even borrow money online.

Budgeting Apps

Money management has always been difficult, but with the release of open banking, many companies have sprung up to help people better manage their money. Apps that are powered by AI like Plum and Chip are using this technology to work out how much you can put into savings based on your spending habits. They will then automatically save money away for you. Other companies like Coconut are using open banking to help small businesses and people who are self-employed to manage their cash flow, invoices and tax. You can find out more about alternative accounts on our blog.

Loan Lenders

Online lenders previously had to rely on the information entered into the application form to assess a person’s affordability. Bank statement was also sometimes requested and had to be slowly evaluated for the income and expenditure. But now, many types of lenders from business loan companies to short term lenders like PiggyBank can use open banking to gain a better understanding of whether you can afford to take out a loan. By sharing their data with the lender, the underwriter can quickly see the person’s transaction history and verify their income.

Money Saving Tips For Buying Back To School Supplies For Kids

The back to school supplies shopping trip can be an expensive part of the summer, especially after spending a lot during the summer to keep the kids entertained. Research from Mintel has shown that Brits spend an average of around £400 on new school uniform and classroom equipment each year. But you don’t have to fear the long and expensive supply list: here are some back to school money saving tips and tricks to help you save before term starts!

Reuse stationary from last year

Many parents believe their children need new supplies for a new school year but that’s what the retail stores want you to think. If school shoes still fit or their pencil case is still well-stocked with working pens and pencils, you don’t have to replace them instantly. After the initial back-to-school surge, retailed reduce the price of most school essentials, so you could save a few pounds by waiting. 

Buy basic school uniform from a standard retailer

woman covering her face with an open book

Many school’s uniform policies don’t require you to purchase everything from the school shop. Some basic pieces such as shirts, trousers and skirts can be purchased from standard retailers as long as they match the school colour theme. Key items such as blazers, jumper and dresses (or anything with the school logo) may, however, have to be purchased at the school store or an official store. 

Look For Second Hand Items

Check local auctions on Facebook, Gumtree or even local newsletters to see if any former student’s parents are selling their old uniform, textbooks, calculators etc. You might find some barely worn uniform pieces in great condition, or even a copy of Great Gatsby with some useful notes in for a fraction of the cost. You should consider looking in charity shops too— they’ll quite often sell secondhand stationary that has been barely used before.

Plan well in advance

The best way to save money for the school year is by planning well in advance. What textbooks are required for the school year? Will your child need art supplies for school projects? Are there any school trips this year you’ll need to fund? Email the school secretary or ask a class teacher at the beginning of the year what extra activities are planned and the cost involved for the year. Knowing what you will have to pay for you’ll be able to budget and plan better for the year ahead.

Save on next year by buying now

From mid-September onwards, most retailers reduce the price of most school stationary and uniform. If you’re able to wait for the sales, this is a great way to save for this school year. If not, you could use this as an opportunity to stock up supplies for next year. Just remember if you’re planning to buy cut price school uniform, buy a size up in case your children go through a growth spurt! 

Don’t fall for retailer’s marketing tricks

assorted-color hanging clothes lot

It is common for retails to divide school supplies into two categories – girls and boys. For example, school shoes are always nearly marketing for either boys or for girls, but boy’s shoes often have much thicker midsoles making them far less likely to break as fast as the thinner girl’s shoes. Try to buy your children the shoes that and are comfortable and robust rather than the ones that are aimed at their gender for fashion and you might find that they last longer.

Spend less (or more) on tech

When it comes to purchasing new technology for school use or homework, it’s important to consider the age of your child and how advanced the gadgets needs to be. If they only require a laptop for typing up homework or researching, a very basic device will be more than sufficient – and you can worry less if they lose or break it. However, it’s also important to keep in mind the longevity of the product and how long it will need to support your child’s education – you may save more in the long run by spending more on faster, more efficient tech. 

Compare Prices

Lastly, shop around and compare the prices in multiple stores where you can. Some stores such as John Lewis, Currys PC World, Argos and Tesco offer a price match guarantee, so check online to get the best price. The chances are that your children won’t need the professional set of colouring pencils and are probably better off getting the cheaper set.

Top 5 Alternative Savings Accounts

Saving money these days can be a challenge, especially with interest rates at their lowest. Though spending your hard-earned cash on things you actually want sound much better than leaving it in a cold dingy bank, it’s important to save little and often so you’re prepared for those unexpected expenses. Fortunately, we’ve found some alternative savings accounts to help build an emergency fund. If however, you don’t have enough saved away when disaster strikes, My Financial Broker can connect you to a short term loan lender. 

Moneybox

Moneybox is a simple and easy investment app. It works by rounding up your everyday purchases such as your morning coffee to last night’s Uber to the nearest pound and investing the spare change. They also offer cash saving products and long term investment products that can be set up from your mobile phone in minutes. 

When setting up the app, you choose from three different investment options – cautious, balanced and adventurous. These options are made up of different allocations of a range of tracker funds. Cautious is fairly low-risk investments such as cash funds and government and corporate bonds. Whilst adventurous is high-risk with a majority of your money being invested in global shares.

It’s important to remember that there is a risk in investing as you not receiving a fixed rate interest, but over the long-term stocks have delivered better returns as they pay higher interest so there is also a risk with not investing. Though it’s true that keeping your money in a standard saving account gives you more certainty about the interest rates, it’s very unlikely the interest you’d earn will match inflation – meaning the purchasing power of your money declines every year. With Moneybox (as well as most banks and building societies), your investments are covered by the Financial Services Compensation Scheme up to £85,000.

Monzo

Monzo is a smarter online bank account that helps you to manage your money. It allows you to set monthly spending budgets for things like groceries and household bills and notifies you if you ever go over your budget. You can also use your card abroad for free! But how does a current account help you to save?

As you can see an easy summary of your account at any time using their handy app, you can identify where you’re spending unnecessarily, cut back and put that money into one of their saving pots. Monzo has partnered with a variety of providers who offer competitive saving rate (all over 1%). You can also add customer images to your saving pots to stay visualise what your saving for (whether that be a house, car or holiday) and stay motivated. Similarly to Moneybox, Monzo will also round up transactions to add spare change to saving pots automatically and schedule monthly saving to deposit to keep you on track. S

Squirrel

Squirrel operated a little differently than other alternative saving account but it still makes saving for your goals easy and helps you create your own personalised budget. 

Squirrel is an online savings account and operates as a middle man. Rather than having your salary paid into your current account, the money will be transferred to your squirrel account where it will be held safely until your bills are due to come out. Squirrell will automatically transfer money to your current account the day before your bills are due so there’s no need to ever have to worry about accidentally spending bill money. You can also transfer some additional spending money to your debit cards, and leave the remaining safe in your squirrel account. 

Squirrel is different from a regular saving account as it makes it easy to save and importantly help to keep you motivated to not to withdraw your saving early unlike a normal account. Similarly to Monzo, you can create personalised saving pots for all things you might want to save for and add your names and pictures to saving and set goals and track progress.

The most important thing about saving is not necessarily how much you save but making a habit of it, so we hope these alternative savings account has inspired you to save up for a rainy day. Though there are other methods of cover rainy day costs such as credit cards and overdraft, they can have high-interest rates, and wouldn’t you rather earn interest that has to pay interest.

Plum

If you don’t know how much you can afford to put away each month, Plum is the app for you. Plum aims to make it saving easier so you can spend money on the things you want, rather than the things you need. It’s smart algorithm analyses your spending, and every few days transfers the perfect amount into your Plum savings account automatically

Plum works as an AI chatbot service, built into your Facebook messenger. You can adjust how much Plum saves for you whenever you like by messaging Plum via Facebook. When you’ve reached your saving goal, or need some extra cash, you can request to withdraw at any time. Having Plum built into Facebook messenger as opposed to its own app makes it easier for those who struggle to save. As it blends into your everyday life, you can rest assured that your money is safe and savings are building up little by little rather than downloading and checking a separate app.

Plum savings don’t pay interest, but you can invest part of the saving earn with a single command. Your saving will be invested at RateSetter – one of the biggest peer-to-peer (P2P) lenders in the UK. P2P lending is a rapidly growing, FCA regulated form of investing in which people with money who are looking to achieve an interest return are able to lend collectively to credit-checked individuals and business who are looking to borrow. 

Chip 

Similar to Plum, Chip is an AI-powered money app that calculates what you can afford to save, and securely saves for you automatically. The app analysed more the 160 million transactions to save you money without it affecting your day-to-day spending. It’s different from Plum as you receive a high-interest rate by recommending a friend.

You start with a base interest of 1%, but every time you refer a friend, you’ll get a 1% boost for the year, up to 5%. You need to ensure your friend signs up with your specific code and connects their bank account. After a year, you can again refer another 5 friends. The interest is calculated on a weekly basis but is paid quarterly so you may potentially lose money if you withdraw the saving early. 

Unlike Plum, Chip is a separate app but still features the simple chatting service so it’s perfect for those who want to keep their social account and bank account separate. At the moment, Chip connects to with traditional high street banks and building societies.