Embedded finance and 'DIY wealth management' can drive a more equitable digital economy

Discussions around mental health and wellbeing have been thrust into the spotlight lately, and with good reason when you consider the impact of repeated lockdowns and the economic chaos introduced by COVID-19.

Managing your money appropriately is undoubtedly a significant source of stress in these strange times. A recent study by Metro’s ‘Mentally Yours’ podcast and Toluna, for example, found that an alarming 77% of people - more than three quarters of the UK population - have seen money worries negatively impact their mental health. 

Thankfully, we hear much less “man up” these days and more about the importance of talking to people to discuss your worries and options - but what solutions are actually out there to help people take firmer control of their money?

A wealth of options to pick from

Much of the fintech sector is focussed on the empowerment of the financial consumer, and that can only be a good thing. The latest developments are being driven by Open Banking, which I feel can really come into its own by helping those who need it the most - financially-vulnerable individuals and SMEs who have been traditionally underserved by the financial services sector. 

Open Banking is democratising access to financial products and services. It’s giving people the ability to take advantage of the financial data that’s usually housed at their bank; by giving their express permission, consumers can now share that data with a raft of innovative fintech third parties who can make the data work harder to unlock a wider range of opportunities.

If you think about it, it’s no different to the privacy permissions on your mobile devices that let an app use your camera or link up with your friends’ accounts. And, similar to these app permissions that we’re all becoming comfortable with, you remain in full control of how your data is shared.

Open Banking has also ushered in embedded finance, which enables companies outside of financial services to offer their customers sophisticated financial products. Many of the world’s top brands have already adopted embedded finance - think of Apple with Apple Pay, and Grab, who have launched a buy-now-pay-later (BNPL) option. I expect countless others to follow suit, making financing available via the integration of consumer lending APIs.

People have never had so many options when it comes to paying for things or accessing credit. They have a choice that previously wasn’t there. 

A game-changing set of new tools

Riding the crest of this financial sea-change are a number of fintechs and apps that promote ‘DIY wealth management’ that can help people to feel more at ease with their money and financial future. 

Financial resilience can’t improve unless we create a financial buffer and start to pay ourselves first by investing and saving. Part of the beauty of fintech is that it simplifies the management of money. It provides a frictionless, secure way to save and invest. 

Spend and save bank cards, for example, can automatically invest the same amount as your purchase, or round-up directly into your retirement pot. This is a huge step forward. It places your future at the forefront of every purchase you make. And when you’re feeling a little more flush, there’s the ability to pay yourself immediately, without having to wait for a direct debit to be collected, and there’s the chance to have instant access to your savings when you need it the most. 

The likes of Plum are harnessing developments in AI to also promote financial education in the investment space as people get more au fait with managing their own finances. Plum lets people who would happily class themselves as beginners start off by investing as little as £1 in varying funds with transparent risk levels. 

For more sophisticated investors, there’s tools that enable a single view of wealth portfolios, as well as a much-improved consumer experience through conversational technologies, such as Alexa and Siri. 

I see it as a virtuous circle: the simplicity, convenience, and enjoyable user journey that these new apps are providing will encourage financial services companies to put an emphasis on constant innovation to make sure they’re providing the very best user experience - or else people will go elsewhere. 

A growing ecosystem

I find the interplay between fintech, Open Banking and embedded finance so fascinating because it enables more people and companies to take advantage of financial tools and services that were previously deemed out of reach. 

This will bring more people into the digital economy, making it a far more equitable place, but there’s also a huge opportunity for companies that want to grow financial products outside of traditional financial services structures. It’s estimated that embedded finance has an addressable market opportunity worth over $7 trillion in the next ten years, twice the combined value of the world’s top 30 banks today. 

Ultimately, people need to trust Open Banking, and the developments that it’s fuelling, to get the most out of it. The signs are good, with the number of UK users now approaching three million, but it’s incumbent on us companies in the financial services space ensuring full transparency and an emphasis on permissions. Get this right, and there’s opportunity for everyone.