Words, Sam O'Connor, Coconut
Mortgages, pensions, loans and other everyday bank products just seem unattainable for most freelancers. But all of that is about to change.
The world is opening up its data. Whether or not you know what an API (Application Programming Interface) is, you use them everyday when you use the internet. They sound complicated, but are really just like whatsapp for computers. APIs let computers chat and share information securely with each other.
Some obvious examples are where you use your Facebook account to login to your favourite app, or when Spotify starts posting your embarrassing playlists on Facebook. But they can do much more than help you login or reveal your Celine Dion guilty pleasure to the world. They are going to transform the way we interact with our banks, and in doing so help freelancers become more financially secure.
Banks don't make it simple
Apply for a bank product like a current account, credit card, mortgage or loan and you’ll embark on a very boring process. You’ll spend a long time filling in an application, either yourself or on the phone. They will run a credit check. And after some time the computer will decide whether you can or can’t have a product based on very limited knowledge about you.
And yet, your actual incoming and outgoings - the most accurate picture of your finances and the risk you pose - are available with your bank. But they’ve locked them away. Of course they have though. Why would they share your data with other companies who want to offer you cheaper, better products? That would mean you go elsewhere...
Banks are being forced to change
Luckily, open banking is going to change all of this. By 2018, it’ll be mandatory for banks to give secure access to your data to those you want to share it with. This will provide much faster and more accurate assessments of your finances, an easier way of comparing financial products and will mean products and services can be tailored to your needs.
Take mortgages for example. They are not kind to freelancers. The current mortgage model is set up for full-time employees who are seen as lower risk. Freelancers usually have to submit three years’ worth of financials to even have a chance of getting on the housing ladder.
With open banking, however, a freelancer’s precise earnings are a click away. Banks and mortgage brokers can accurately and quickly assess your situation, so you avoid much of the additional paperwork.
Pensions are another freelance bugbear. Saving for the future is so hard to do when your income is up and down. But imagine a pension saver product that responds to your financial situation. With open banking, your pension provider could take only what you can afford to set aside each month by looking at your earnings and being clever about it. This will give you the best chance to save the retirement fund you want whilst not breaking the bank.
These are just two examples, but open banking will create many new products. Everything from instant loans, to budgeting apps, to savings widgets, to product marketplaces.
Open banking won't happen overnight, but there's hope yet
Open banking is really exciting. But here’s the bad news: banks are really struggling. They have systems that date back 50 years and aren’t set up to share data. And they’re scared about what’s going to happen to their businesses with everyone shopping around so freely. So sadly the situation isn’t going change overnight.
Luckily there are other great financial products coming through that can help you in your personal and your business lives. Moneybox is a great open banking app to help you save - really hard to do as a freelancer with variable income and a big fat to do list. When you buy a coffee for £2.60 at Shoreditch Grind for instance, it’ll round up to £3.00 and pop the spare 40p in a savings account for you. So you don’t even have to think about building your nest egg, it just happens.
Bud is a tool that helps you get the full picture of your finances across all your different accounts. Really useful for freelancers who have a business and a personal account.
For pensions, take a look at Pension Bee. These guys have built an awesome product that collects up all your pensions into one place and makes them easier to manage. So if you have loads of different employee pension schemes from before you went freelance, it’s really useful. You can also set up monthly payments into your pension really easily.
And for specific freelancer banking, there’s Coconut. I started Coconut with Adam after we went freelance and found the money side of self-employment frustratingly complicated. As I’ve mentioned before, banks aren’t doing anything to help the freelance community and probably won’t for a while. So we decided to build a bank account that solves real freelance problems like working out tax, getting paid on time and keeping your expenses in check.
We aim to make access to pensions, mortgages and loans easier for freelancers. And of course you can securely share your data with anyone you want, meaning you can always shop around for the best products.
Open banking is going to help our community thrive. As new products like Moneybox, Bud, Pension Bee and Coconut develop, customers will naturally start demanding more from their banks. This will create an open data revolution in banking.
As a freelancer or contractor, what's your opinion on the future of banking? Get commenting...