3 features that lower the barrier for consumers to invest
Consumers experience a high barrier to invest money. Open banking provides potential for lowering this barrier, with simple features that make the financial future relevant today.
For consumers, investing money for later is generally shown to be an effective instrument for a financially healthy future. Nevertheless, only about 15% of Dutch households invest. Despite platforms like Peaks and Semmie offering investment accounts with the simplicity of a savings account, a large share of consumers still perceive a high barrier to investing. Important reasons for consumers not to invest include fear of risk, a perceived lack of knowledge and a lack of daily relevance.
A new approach to lowering these barriers is enabled by open banking, as it allows a seamless connection between consumers’s day-to-day finance and long term goals such as investing. It enables financial companies to empower their customers with a new low-barrier approach to investing without affecting their existing proposition. In this article we discuss three concrete examples of how Bittiq’s open platform can be applied to lower important barriers to investing for consumers.
1) Investing financial extras
Many consumers have the perception that their financial situation is inadequate in order to start investing. One effective way to overcome this is to start from small financial extra’s - money that people did not actually realise they had.
Financial extras are small amounts of incoming money such as refunds, tax returns or paid payment requests. When totalled, these financial extra’s make up a significant amount of money. Bittiq found that payment requests alone account for an average of €80 each month - money that is effectively hidden in the balance of the payment account. Another effective way of investing financial extras is the automatic rounding up of payments, where a small share of every transaction is automatically put into your investment account.
Making these financial extra’s explicit to the consumer opens up the doors to ‘pain-free’ investing, as consumers can invest money without ever affecting their current spending or saving behaviour. This reduces their fear of money they should not risk, and helps them to effectively set money aside.
2) Insight into the money free-to-spend
The money ‘free-to-spend’ consists of someone’s account balance, but already taking into account reservations such as fixed charges or a savings buffer. From Bittiq’s personal finance experience, we know that consumers use their ‘free-to-spend’ both in their everyday financial decision-making as well as decisions for the future. Hence, it is an important handhold for bridging the gap between the financial future and the current situation.However, consumers often lack the data-driven insight into what part of their free-to-spend they can safely put aside into an investment account. By providing consumers with a tool to track their free-to-spend, consumers have a better sense of the money they can safely invest or set apart. This helps to make the financial future relevant on a daily basis by providing continuous value in the now.
3) Behaviour-based triggers
Getting consumers to effectively plan - and therefore invest - for future financial situations or life events like retirement, is notoriously difficult. Their mind is set on their current financial situation rather than the future. Hence, it is essential to be present in the now for consumers.
One way of doing this is to be relevant on a daily basis in the financial lives of consumers. Clever timed nudges linked directly to the financial situation of consumers actively guides them in their saving and investment behaviour throughout the month. Bittiq found that sending consumers a trigger the day before their salary helps them to set aside some or all of their remaining balance, preventing it from becoming “lost” in everyday spending.
An important moment to trigger consumers is upon life events, which are moments in the life of consumers that naturally involve a changing financial situation. These life events are therefore an excellent moment to trigger people to consider their financial future. A change in jobs could mean more income or taking a mortgage might mean lower monthly living costs; both extra money that can be put aside for the financial future.
Better financial decision-making
Open banking opens up new ways to help consumers make better financial decisions. In order to support them in achieving a financially healthy future, it is essential to provide relevant triggers in their everyday financial lives. This can be achieved by combining technology with a thorough understanding of consumer behaviour. If done in a way that resonates, it can drive consumers from a short-term focus of their finances towards a more sustainable and long-term approach to financial wellbeing.
Curious to try it out?
In order to allow everyone to experiment with features based on open banking (e.g. transaction data, connection to bank accounts), we developed a testing environment with mock transactions. It provides a low-barrier way of rapidly experimenting with innovative solutions like the ones described, without any technical connectivity being required.