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Could apps help you manage debt?

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Profile photo of Chris Gorst Chris Gorst Director of Challenges – Nesta Challenges
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Would you use an app that links to your bank account to help manage debt? Our guest explains more on the week of Open Banking’s second anniversary.

This is a guest post by Chris Gorst. All views expressed are Chris’s own and not necessarily shared by Which?. 

It’s no secret that in the UK we love to splash out around Christmas – treating our friends, family and ourselves to lots of lovely food, evenings out and (of course) presents. But have we spent too much?

According to a 2018 Deloitte survey, the UK is the highest spending market in Europe when it comes to Christmas at 42% more than the European average.

In fact, new research from Nesta Challenges has revealed that a quarter (26%) admit to overspending this Christmas with 51% saying they are now making a new year’s resolution to save more while 44% are committing to spend less.

High levels of debt

It’s perhaps unsurprising that people want to spend less given our high levels of debt in the UK. People in the UK owed £1,661bn in September 2019 up from £1,612bn the year before.

And with a third (29%) of us without a ‘rainy day’ fund for unexpected spending, it’s clear people need help to get back on track after the festive period.

But there’s no need to turn to an expensive financial adviser – it’s 2020 now and there are many apps and tools available that use artificial intelligence (AI), algorithms, and state-of-the-art technology to help people manage their finances.

By linking securely with your bank account, these apps get to know us by exploring our spending patterns, our income and our commitments, then make informed, personalised recommendations.

They can help us reduce or avoid debt, access more affordable credit and learn how to better manage our finances to become more resilient to financial shocks.

The Open Up 2020 Challenge

These five apps are all finalists in the Open Up 2020 Challenge, run by Nesta Challenges in partnership with the Open Banking Implementation Entity:

Cleo – an AI assistant with a sense of humour which helps Gen Z/ Millennials budget, save and track their spending.

Moneyhub –  a financial management platform, pulling together multiple accounts, offering people actionable insights to improve their financial wellness.

Portify – a credit builder for modern workers with unconventional earnings patterns, it analyses earnings and spending behaviours to prevent overdraft and interest payments and offers a fee-free credit line.

Tully  – a digital debt adviser for those struggling financially – providing online budgeting, debt advice, flexible repayments and money coaching to alleviate financial stress.

Updraft – a solution which automates day-to-day decisions involved in managing money, designed to help millennial users clear their overdraft, pay off their credit cards, and save more.

See the other 10 finalists

The Challenge encourages the development of innovative solutions that use open banking to help the nation make more of its money and indeed nearly half (47%) of people like the idea of using apps and tools to manage their money.

Which? Money recently covered the finalists in the Challenge to mark the second anniversary of Open Banking in the UK.

What are your views on apps like this? Would you want to use one to help you manage your money? Or if you have already used one how did you find it?

This was a guest post by Chris Gorst. All views expressed were Chris’s own and not necessarily shared by Which?. 

Comments
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DerekP says:
15 January 2020

I think I would be rather wary of letting any 3rd party app access any of my bank accounts. Where would I stand if the app were hacked and used to steal money from any of my accounts?

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Chris Gorst says:
16 January 2020

This helpful Which? guide has more information about sharing your data through open banking, what happens if you’re a victim of fraud or if there is a data breach:https://www.which.co.uk/money/banking/switching-your-bank/open-banking-sharing-your-financial-data-anscq4g8p62h (I recommend reading the answer to “Who is liable for unauthorised payments in open banking?”)

In short, open banking uses rigorously tested software and security systems. Third party providers are regulated and have to comply with the rules of the Financial Conduct Authority or European equivalent – if you give your bank permission to share your data with one of these regulated third parties then that party is responsible for protecting your personal data.

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malcolm r says:
16 January 2020

Part of this guide says:
“What are the security risks to open banking?
Open banking should give you greater control over your money, but it raises critical questions about data privacy, security, and financial exclusion. Even regulated firms aren’t immune from cyberattacks, as evidenced by the recent Equifax data breach, and bank account transactions can include highly sensitive personal data about spending habits, political affiliations, medical care, family and friends.

The OBIE says: ‘The regulated third-party provider the consumer has given their consent to for sharing their data with, is responsible for ensuring any personal data they process, store or transfer is appropriately and securely protected. ‘The consumer can directly complain to the third-party provider in the first instance, and should this not resolve the issue, they can lodge a complaint with the FOS. They can also lodge a complaint with the Information Commissioners Office.’ But, with a complicated chain of providers sharing access to your data, multiple parties could be potentially liable for loss of a personal customer’s data though error, attack, or fraud.

The issue of ‘consent’ needs to be looked at carefully, so that consumers understand exactly what they are agreeing to when they share their data. This is particularly important when apps or services combine open banking with other methods of data sharing. ”

Read more: https://www.which.co.uk/money/banking/switching-your-bank/open-banking-sharing-your-financial-data-anscq4g8p62h – Which?

Sharing sensitive data with others is surely going to increase your risk of a security problem. however small – as, in the scheme of things, is APP fraud. It has its advantages as it takes away personal effort in compiling your own financial picture. However, I would argue that many people with simple finances – a current bank account, savings account, credit card and a mortgage – would be better off keeping their own records up to date with personal money software and gain a better understanding of their situation. Even if you have multiple accounts this software is more than useful; MS Money includes loans, investments, cash, a bill and reminders, search for old transactions, checking statements …….

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DerekP says:
16 January 2020

Chris, thanks for the detailed reply.

But, as I think the Travelex case shows quite well, using any given online service comes with attendant risks from cyber attacks.

When the potential benefits far outweigh the potential detriments, it can make good sense to use a service.

But, in other cases, it might not be wise to sign up.

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malcolm r says:
15 January 2020

I agree with Derek P. I have MS Money (sunset edition) that was downloaded free, works on Windows 10 (for me) and I use my intelligence, such as it is, to keep track of my finances and in a hands-on way. Why would I hand this useful information to someone I do not know and who may or may not have a secure system?

I would prefer it if Which? gave people information and personal tools that they could use to budget and track their money affairs. They would then, perhaps, better understand how to live within their means and know where there money was going. 🙂

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alfa says:
15 January 2020

If you are going to put your trust in an app, firstly you must be 100% honest with it, and I can’t see most people who do not take responsibility for their finances being honest with their spending habits.

I took a look at some of the above apps. Are they for real? Would you really ask a 5″ screen if you can afford a takeaway? They take away all personal responsibility for handling finances.

I agree with Derek and malcolm in trusting my finances to an app that could easily be hacked.

Anyone who seriously wants to manage their finances needs a good old-fashioned spreadsheet to write down ALL their income and outgoings. They should then be able to see all their finances in one place and see where they can save money if that is what they need to do.

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Ian says:
16 January 2020

Yesss…I think it’s this phrase:

By linking securely with your bank account

that marked the spot where I decided it wasn’t for me. I’m not a Luddite, however; our youngest tells me I’m classed as an ‘early adopter’, and technology and what it can do has always fascinated me. So why would I balk at a single sentence?

Many years ago I was a computer journalist, writing for magazines such as QL and a variety of others that sensed the excitement as the world of the desktop computer became accessible to mere mortals. I also programmed for Sinclair, which is where I had to learn Assembler and its associated intricacies.

One thing I learnt at a very early stage was that binary code (the low level stuff on which everything else in a computer depends) was close to impossible to program in; simply writing lines and lines of zeros and ones lacked a bit of job satisfaction. You needed words to know what you were doing, and so Assembler was created.

That allowed us to work on commands that would address the processor directly – essential for high speed graphics in early machines. As time went on, it was clear that it wasn’t feasible to write everything from scratch (simply making a ball roll down a ramp on screen produced around 30 sheets of code) so the subroutine was developed.

Since then Moore’s law has become a reality, computer processor speeds have increased exponentially, and what needed to be done on a low level language is no longer necessary, as more and more high level languages have become available. A ‘high level’ language is one in which you can use words and sentences directly to make things happen: the For-Next loop is a classic example.

To save time, sub-routines were written in high level languages and, over time, people forgot that low level languages even existed. Figures on screen could be created with a few words, calling a specific sub routine, and the gaming industry thrived – and thrives.

What’s this got to do with the banking app, I hear you ask in frustration. Well, if you haven’t yet lost the will to live, it’s this: all current software uses code that has been built over the years on low level codes that talked directly to the processor. But there’s a problem: there were flaws from the outset in the processor codes. Instead of those being rectified, faster and bigger processors were developed.

The upshot of this is that all current coding languages are flawed.

In reality this means Boeing Max, Ransomware and a host of other nasties that render the word ‘secure’ in computer terms largely meaningless. The programming world spends its days and nights catching up to those who’ve exploited the flaws.

So on balance – no. Not only do I agree with everything Alfa has said but it’s only secure until it isn’t.

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DerekP says:
16 January 2020

Well said Ian.

As someone who sometimes writes code and also, from time to time, hacks code that others have written, I have often found it all to easy to come up with imaginative ways of cheating or breaking intended security features. When I used to do target shooting, I was legally required to keep my firearms securely locked away when not in use. In that context, a friend at my local gun club gave me some very good real world advice: “Locks only keep honest people out”.

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wavechange says:
16 January 2020

In the early 90s I entered my income and expenditure for a year into a spreadsheet as an exercise. It did not save me a penny and was a waste of time. I now just keep a record of investment income for tax purposes. I check my current account online at least once a month to keep track of expenditure, moving money in or out as necessary. My top priority is to avoid paying overdraft charges or credit card interest.

I have no need for apps to manage money. That was a challenge when I was a student but I graduated with a small credit balance. Pity help students of today, who have to rely on loans rather than grants.

Like those who have posted so far I would be concerned about security. The FSCS protects my money in banks and building societies, but what protection do the providers of account management apps offer?

Unless there is a good fairly, I assume that the apps mentioned by Chris are funded in some way by users.

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Kevin says:
16 January 2020

I think they are mostly subscription based; I’m sure that their security and privacy will be exemplary, won’t introduce another mostly pointless security risk, and they won’t be using the intimate knowldege of their user finances to exploit them in any way, or operate the boiling frog technique on pricing, like the banks in no way gameplay and exploit their clients.

How about just formalising the data downloads available from banks in a standard csv format, forcing banks to follow some kind of consistency on how online banking interfaces work, and mandating a minimum standard for login security which doesn’t employ a flawed (but better than nothing…) SMS messaging method?

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wavechange says:
16 January 2020

I agree on standardisation on .csv downloads and having a minimum standard for security, Kevin. I’ve used a range of accounts over the years and having date of birth or my mother’s maiden name should not feature in security information or security questions.

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malcolm r says:
16 January 2020

You can use false date of birth and maiden name presumably, just as long as you remember what you have used. I did this on Facebook and one of my relations gave me a card and present – on the wrong birthday.

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Kevin says:
16 January 2020

Yes, it’s almost as if many of the people working in corporate IT, and IT security particularly, knew nothing about it and preyed upon the woeful and often wilful ignorance of managers and executives who can’t distinguish between IT and magic.

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Kevin says:
16 January 2020

Tricky to decide whether this is loveable, worrying or insulting. I’m guessing it wasn’t a 21st birthday card though?

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