Open banking: Strengthening the grantmaking process

Published 17 September 2021​

Open banking was introduced in the UK in 2018 to increase transparency and fairness within financial services, by providing third parties digital access to banking information. There’s been a steady uptake with a reported 3 million active users, but innovation has largely been focussed on commercial uses such as lending and payments - and lagged behind in the charity sector. 

 

Organisations providing grants to individuals are still reliant on traditional, manual processes to verify the financial circumstances of individuals, but stand to gain from digital access to banking information to accelerate turnaround times for administering support to those in need.

The problem with financial assessments in grantmaking

With 1 in 5 people in the UK struggling to pay their bills, there’s huge demand for financial support from charities and public sector institutions. Individuals are typically required to share their financial details in the application process, but often struggle to download or post bank statements and other supporting evidence, especially with many only using (or having access to) mobile phones. 

 

Organisations, which typically target funds towards people who need it most, may need to engage in lengthy back and forths and go through copious amounts of paperwork to receive accurate financial information in the correct format, and can be exposed to increasingly sophisticated document fraud. As a result, people can end up waiting for 5 weeks or more to receive the support they need.

How open banking makes a difference

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By applying open banking technology to grantmaking via our financial verification product, we’ve helped to reduce paperwork, speed up the process and increase security. 

 

The platform allows people to easily and securely connect their online bank accounts in under a minute, providing organisations with accurate, real-time information directly from banks - reducing fraud and enabling them to confidently verify a person’s financial situation.

Early results

Since launching the product earlier this year with national charity Turn2us, over 400 people (62% of overall applicants) opted in to connect their bank accounts via open banking. 78% of them went on to complete the journey within 1 day, illustrating that the process can work for people in financial hardship - and reinforcing a point made in a recent article by McKinsey on the rise of open financial data - “Financially stressed consumers, although not a typical target for financial services, are likely to be a key segment for open-banking solutions.”

 

59% of applicants have two or more bank accounts, so the ability to connect accounts online has significantly sped up the application process. With a significant share of accounts (16%) held with challenger banks which do not have a physical branch to print paper statements, this has been even more important.

“[The Lightning platform] is so much better, you just have to scan a QR code and they can then just access three months’ worth of statements and it just speeds it up completely. It’s really really good...so quick” Tomris, Turn2us grant recipient

The product has enabled grants to be delivered quicker and more effectively - for those that opted in to use open banking, the number of cases that saw grants delivered in 5 days or less was more than double that of cases overall. 

 

Crucially, increasing the speed of grant delivery improved the immediate financial stability of grant recipients, with 82% of those who used the Lightning platform agreeing that their ‘current financial needs have been met’, compared to 65% before open banking was introduced.

The challenges with open banking

As with all solutions, open banking has its constraints. With 1.3 million unbanked adults in the UK, there is still a significant section of the population that cannot reap the benefits of this system. 

 

And while we’re encouraged to see that a large share of people within financially vulnerable segments are willing and able to use open banking technology, there is still widespread mistrust of financial institutions amongst this group. Effectively communicating the ease and security of the process is key in enabling them to access support quicker.  

 

Though the large majority of banks are available on open banking, some account types, such as credit and savings accounts aren’t always available as they are not mandatory under open banking regulations. Moving towards an ‘open finance’ approach with more comprehensive coverage will be key to building a full picture of a person’s financial situation.

The future

The potential for open banking to facilitate support to individuals doesn’t end with speeding up grantmaking. By aggregating data across the sector to build a picture of the financial situation and trends amongst our end users, we could work collaboratively with partner organisations to develop products and advice to help improve the longer term financial health of the people we support.

Conclusion

There’s real evidence that open banking can, and is, improving the grantmaking process for organisations and individuals alike. And while there are constraints there’s great potential for a wider reaching impact in enabling more proactive and collaborative support systems to help people on low incomes to build financial resilience.

To book a 30 min demo or to discuss how we can help your organisation with grant delivery, get in touch with our team at hello@lightningreach.org - we would love to hear from you.