How tech will revolutionise spending
UK BANKS have invested a lot of money in the last decade to speed up financial payments. You can now pay for everything from food to fuel for your car with a tap of your mobile phone or contactless bank card. Online banking, meanwhile, is available through smartphone apps, and you can choose to pay individuals by using their mobile phone number.
While this ease of payment is generally regarded as a good thing, there are downsides to this convenience. Companies such as Amazon have pioneered the “1-click” purchase – which is equivalent to the instant tap of Apple Pay or a contactless payment. Businesses generally want to sell you stuff whether you need it or not and many employ experts in behavioural psychology to find the best ways to make us buy.
Impulse buying – we all do it. Gone are the days when we had to take banknotes out of a purse or wallet, and physically realise we were about to spend a wad of cash. Instead we spend electronic money instantly. It’s easy to overspend, but with 1-click purchases there is no ability to change your mind.
The emphasis of our traditional financial services sector has always been on the ease of purchase as opposed to making it easier to control your spending.
However, this is set to radically change with the introduction of “open banking” or “application programming interface” from the European Union’s changes to the Payment Services Directive.
Open banking means that financial services and products must all talk the same online “language”. Why is this important for consumers? From next year, third-party companies will be able to offer innovative technology that can access, with your permission, your personal and financial data with banks.
Financial technology (“fintech”) companies and developers have already been leaps ahead of the major UK banks when it comes to clever technology.
This is frequently designed to empower you to budget and spend more sensibly and with greater control. There are already some really interesting fintech products on the market for consumers – some free, some for a small monthly fee.
Here’s a quick flavour of some of the current innovations around – but remember financial technology and innovation will only really take off once open banking happens in the UK next year.
Monzo offers a pre-payment contactless card, which is like a debit card and is controlled by an app on your smartphone. You load the card with your budget and it tracks your spending, breaking it down into different categories of spending like groceries, eating out, shopping and transport. When you buy something you get a notification on your phone, iWatch or Fitbit.
Plum is a clever free online service that you can access via Facebook or Messenger. You link it to your current account and its algorithm will check back on your last year of transactions and work out in real time what you can afford to save. It will automatically place money into a savings account for you, held at Barclays, or you can do it manually.
Pennies is a mobile phone budgeting app that synchs to any Apple device and also allows manual expenses to be added in. You can set as many budgets as you like and it will track your spending as well as enable underspent budgets to be moved around. It’s essentially a very simple tool to budget on a real-time daily basis.
Squirrel is a bank account for a small monthly fee (backed by Barclays) that enables money for your bills and savings to be held back and automatically ring-fenced so you never miss a bill from your main current account. You have a budget for dayto-day expenses and can cancel the service at any time. Accessing savings is on 24 hours’ notice to help you avoid impulse purchases.
What all of these solutions have in common is the use of technology to give you more control of your spending, making it easy to ensure bills are paid, help realistic saving goals to be achieved, and avoid impulse spending you regret later.
Open banking offers the ability to utilise innovative technology that can help consumers avoid financial difficulty, or empower them to get out of financially-stressful situations.
There is an opportunity for this technology to revolutionise the free advice sector in Scotland, enabling traditional debt and money advice services to be undertaken more efficiently and effectively.
An obvious opportunity for the Scottish Government and other public bodies to take a lead here, working with fintech companies, advice agencies and consumer educational bodies.
The UK might also consider introducing the choice of a new cooling-off period for consumers making online transactions. Perhaps an option could be to offer consumers 24 hours to cancel a purchase? At the moment there is generally no such choice available.