Oct 12, 20208 min read

Personal Finance Management and Open Banking

Philippe Rousseau

by Philippe Rousseau

Alarmingly, 56% of millennials have zero retirement savings and only 61% of ‘Baby Boomers’ and ‘Gen-Xers’ have money set aside for their golden years.

As consumption-fuelled lifestyles continue to shape the modern world, the way people view and interact with their hard-earned money is evolving by the day. While personal finance management was once a simple case of documenting bank statements, today’s financial landscape is littered with new complexities and challenges.

With the average consumer owning over five bank accounts, the introduction of the Second Payment Directive (PSD2) across Europe opens doors to powerful opportunities for specialised financial service providers to offer dedicated tools and apps. These tools help customers take control of complex finances and pave the way for a prosperous future.

How Does Open Banking Support Personal Finance Management?

Open Banking caters for innovation in the finance sector and aims to empower account holders by putting them in control of their data.

While the big banks have dominated the financial services sector for centuries, the introduction f PSD2 by the EU Commission facilitates secure data transfers between regulated banks and authorised third-parties.

Open Banking helps financial service providers access the bank account information they need to deliver services and products that make life easier for their end-users.

Crucially, customers have the power to decide who can access their personal information.

PSD2 has two key functions that are helping to change the face of personal finance management:

        1. Data On-Demand

Whether you’re finding a lender with deals that suit your specific circumstances or choosing an investment portfolio that aligns with your personal risk preferences, relevance and personalisation are vital for the modern consumer.

Account Information Services (AIS) is a branch of PSD2 that’s helping to improve relevance to customers through highly-specialised TPPs. While big banks have held a monopoly over customer data for years, AIS facilitates seamless data access to democratise the future of information sharing.

Emerging FinTechs and boutique financial service providers can harness customer insights to analyse spending habits, deliver powerful dashboarding, implement intelligent alerting and offer customer-specific product recommendations.

          2. Pain-Free Payments

In today’s fast-paced world, finding the time to organise personal finances can be tough. While digital banking is designed to accelerate labour-intensive processes, juggling multiple accounts and negotiating complex services can be overwhelming for many consumers.

Luckily, the introduction of Payment Initiation Services (PIS) is set to ease the burden for end-consumers by delivering fast and secure payment services between approved providers.

Instead of dealing with the headache of transfer delays between banks, incoherent authentication processes, and the fear of losing money between a number of independent service providers, PIS provides customers with complete reassurance that their money is in safe hands.

Benefits of Open Banking for Personal Finance Management

Combining seamless data access with fast and secure payments opens doors to a world of opportunities. TPPs can empower customers with highly-personalised and sophisticated personal finance management services to suit their specific needs.

As the modern financial landscape continues to grow in complexity, Open Banking provides a ray of light to guide consumers and help them make intelligent financial decisions.

So, let’s take a look at some of the most exciting use cases of Open Banking to provide user-centric personal finance tools.

Multi-Account Dashboards

Several pioneering TPPs in the FinTech space are exploring Open Banking APIs to provide customers with a centralised dashboard to consolidate and manage multiple accounts.

If an individual has direct debits leaving one account, invoice payments into another, a savings pot for a rainy day and credit cards to cover day-to-day expenditure, knowing exactly where their money is and how much they have is almost impossible.

Luckily, the information collected through AIS can augment account insights into a single, easy-to-use dashboard with real-time updates. Instead of cross-checking monthly bank statements or updating a spreadsheet to oversee personal finances, dashboarding provides live insights to help customers track cash flow, assess liquidity levels and plan ahead.

Round-Up Pots

With thirteen-million Europeans falling below the EU’s poverty line (despite having full-time jobs), finding the will-power to set money aside each month can be a real challenge.

Fortunately, seamless Payment Initiation Services (PIS) through Open Banking present exciting opportunities for forward-thinking FinTechs to deliver smart personal finance apps that incentivise simple saving.

Instead of asking consumers to dedicate a chunk of their income into a savings account, challenger banks are diversifying their product offering by introducing automated ‘round-up pots’ or ‘micro-savings tools’ where every transaction a customer makes is rounded up to the nearest Euro, Dollar or Pound.

For example, if you buy a coffee for €2.85, your bank will automatically round up to €3 and set aside the remaining 15 cents into a savings pot. This approach adds a level of gamification and positive engagement for customers as they set themselves saving goals and build loyalty with the app.

As the old saying goes: “Watch the pennies and the dollars will take care of themselves.”

Intelligent Investment Bots

While investment portfolios may seem inaccessible to the average Joe, Open Banking can help consumers build a portfolio at the press of a button. By combining AIS and PIS, third-parties can provide tailored risk assessments and personalised investment advice to support personal finance management.

Whether you take a keen interest in your investment decisions or you’re looking for a safe and passive trickle into your account each month, investment bots serve as your very own personal fund manager.

Consumers can control their involvement and choose the risk level of an investment portfolio — meaning they can relax in the knowledge that Open Banking will provide secure data sharing and safe payments. For example, Lysa AB a nordic robo advisor using Open Banking, recently stated that 10% of Swedish household savings are now invested in funds through their app.

Enriched Experiences

The applications of Open Banking to support personal finance management stretch far and beyond these initial examples.

From intelligent account insights analytics tools to automated payroll platforms and even apps to handle your tax return, embracing customer-orientated features to enhance their experience with a financial service provider can attract customers from new verticals and secure customer loyalty.

TPPs that offer this kind of functionality are making an active effort to empower customers with access to relevant  tools and services that would otherwise be out of reach.


Make Waves with Klarna Open Banking

Klarna is proud to lead the charge in building a highly-connected banking ecosystem as we combine our efforts to empower smaller TPPs with establishing ourselves as a trusted partner for the world’s largest financial institutions.

We’re committed to enriching financial services and improving Open Banking applications to shape the future of money management. As PSD2 continues to streamline synergies between customers, TPPs and banks, personal finance tools will increasingly become part of everyday life. Crucially, consumers will benefit from improved financial freedom, control, transparency and choice.

Learn more or request API Credentials for Playground

Klarna connects TPPs with the fastest-growing banking network in Europe with a single API and a few lines of code.

Visit Klarna Open Banking to learn more about Open Banking, schedule a demo or request your API keys for our playground environment. Let’s connect and get started.