Dr Rachel O’Connell, CEO, TrustElevate

Aebha Curtis

By Dr Rachel O’Connell, CEO, TrustElevate, and Aebha Curtis, senior policy and regulatory affairs specialist,TrustElevate

The advent of open banking applications heralded a more FinTech-friendly, technologically enhanced financial ecosystem. But what do these APIs mean not only for the future of banking but also for future generations?

In the open banking system, financial institutions’ data is made available to users in real-time via two kinds of services: Account Information Services and Payment Initiation Services. These empower bank account holders to engage in personal finance management more freely and connect banking institutions’ services and servers with those of third parties, facilitating multiple points of access to a user’s banking information and providing greater control over personal finances.

Open banking is a critical tool in enabling safe and secure digital co-banking, whereby account holders, such as parents, can establish a permissioned connection between themselves and their dependents’ bank accounts to help manage their money. At a time when people are spending an increased amount of time and money online, this is even more important, especially given the vulnerabilities associated with certain kinds of dependents.

Children and young people are spending more time online than ever before, and the attendant financial risks associated with that have been on the rise too. The rates of money muling, whereby a young person’s account details are used to launder money, have soared. According to recent reports, the number of 14 to 18-year-olds in the UK being used as money mules soared by 73% between 2017 and 2019, with more than 5,800 cases of financial criminal activity among young people in 2018 alone.[1] Additionally, the US Federal Trade Commission data revealed that younger people report losing money to online fraud more often than older people (though their median loss is often lower). Banks have a duty of care towards vulnerable customers, the exercising of which is overseen by the regulators. However, more needs to be done to ensure that young people have the appropriate levels of oversight and safeguarding mechanisms in place to prevent them from falling victim to money fraud.

It is also essential that we improve the financial literacy of younger generations so that they are not only less vulnerable to digital financial crime and fraud, but also provide guard rails to inhibit potentially damaging financial acts. As the OECD notes, young people, in part due to the increased amount of time they spend online relative to older people, are more often exposed to digital short-term credit offers. Buy now pay later schemes target and are more likely to be used by people aged 18-24, and 64% of users often spend more than they normally would due to the arrangement.

Of course, responsibility here doesn’t solely rest with the financial service providers. One major factor in determining the financial literacy of young people is their experiences with and involvement in making financial decisions during early developmental stages. Children that have discussions or are taught by parents and guardians how to make financial decisions early on perform better on financial literacy assessments later in life.[2] Parents and guardians should include children in relevant money decisions to convey values, attitudes, knowledge, and behaviours about money prior to financial independence. And, working as an additional pillar of support, many banking brands are also trying to take steps to educate on these issues too.

As money is increasingly digitised, co-banking will become an essential tool for parents and guardians teaching financial literacy. As an eKYC (Know Your Customer) provider, we are facilitating age-appropriate oversight of children’s finances through a data-driven process that verifies the relationship between parent and child. Through this, parents receive notifications from their child’s bank account so transactions in the linked account can be discussed and a parent can advise. These processes can be adapted as the child grows up.

TrustElevate leverages rigorous eKYC processes that banks conduct and augments those by verifying the asserted relationship between co-bankers. By doing so, these third parties are facilitating the digital financial inclusion of youth while affording appropriate levels of parental oversight to a similar degree that would be expected in offline contexts. The same process is applicable with other dependents such as an elderly parent and an adult child who is granted lasting power of attorney.

Given the spate of new risks and harms that are arising in relation to emerging digital financial opportunities, it is important that all parties – parents, banks and tech – align to make the most of relevant technologies to offset harm and maximise the benefits of those emerging opportunities. It is possible to do all of this while enhancing convenience and building consumer trust, but it must be done in an inclusive and empowering way with trusted third parties. In turn, this will create a brighter future for the next generation and ensure the safety of those who are most vulnerable.