By Dr Rachel O’Connell, TrustElevate CEO, and Aebha Curtissenior policy and regulatory affairs specialist
The advent of open banking apps heralded a more user-friendly and technologically enhanced financial ecosystem. But what do these APIs mean not only for the future of banking but also for future generations?
In open banking, data from financial institutions is made available to users in real time through two types of services: account information services and payment initiation services. These allow bank account holders to engage more freely in the management of personal finances and to connect the services and servers of banking institutions with those of third parties, thus facilitating multiple points of access to banking information from one user and providing greater control over personal finances.
Open banking is an essential tool to enable safe and secure digital co-banking, through which account holders, such as parents, can establish an authorized connection between themselves and their dependents’ bank accounts for help manage their money. At a time when people are spending more and more time and money online, this is even more important, especially given the vulnerabilities associated with certain types of dependents.
Children and young people are spending more time online than ever before, and the financial risks associated with it have also increased. Money muling rates, whereby a youngster’s account details are used to launder money, have skyrocketed. According to recent reports, the number of 14-18 year olds in the UK being used as financial mules jumped 73% between 2017 and 2019, with over 5,800 cases of financial criminal activity among young people in 2018 alone. Additionally, data from the US Federal Trade Commission found that young people report losing money to online fraud more often than older people (although their median loss is often lower). Banks have a duty of vigilance with regard to vulnerable customers, the exercise of which is overseen by regulators. However, more needs to be done to ensure that young people have the appropriate levels of monitoring and protection mechanisms to prevent them from falling victim to financial 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 to provide safeguards to prevent potentially harmful financial acts. As the OECD notes, young people, partly due to the increased time they spend online compared to older people, are more often exposed to digital offers of short-term credit. Buy-it-now and pay-later programs 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, the responsibility does not lie solely with financial service providers. One of the main factors that determine the financial literacy of young people is their experience and involvement in financial decision-making during the early stages of development. Children who have discussions or who learn from their parents and guardians how to make financial decisions early on do better on financial literacy assessments later in life.  Parents and guardians should include children in relevant financial decisions in order to transmit values, attitudes, knowledge and behaviors regarding 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 as well.
As money becomes increasingly digitized, co-banking will become an essential tool for parents and guardians teaching financial literacy. As an eKYC (Know Your Customer) provider, we facilitate age-appropriate monitoring 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 that transactions in the linked account can be discussed and a parent can give advice. These processes can be adapted as the child grows.
TrustElevate builds on rigorous eKYC processes that banks conduct and reinforces them by verifying the asserted relationship between co-bankers. In doing so, these third parties facilitate the digital financial inclusion of young people while providing appropriate levels of parental oversight to a degree similar to that which might be expected in offline settings. The same process applies to other dependents such as an elderly parent and an adult child who is granted an enduring power of attorney.
Given the series of new risks and harms that arise in relation to emerging digital financial opportunities, it is important that all parties – parents, banks and technology – align to make the most of relevant technologies to offset the harms. and maximizing the benefits of emerging ones. Opportunities. It’s possible to do all of this while improving convenience and building consumer trust, but it must be done in an inclusive and empowering way with trusted third parties. This, in turn, will create a better future for the next generation and keep the most vulnerable people safe.