Blog: How open banking cures financial hangover – Finextra

January is known as being the
most depressing month
of the year and a large reason for this is the leftover financial strain put on us due to the holiday season. For many people the winter holidays are a time for gifts and activities with loved ones. Everyone knows it’s also one of
the more expensive times of the year, with many Europeans
spending hundreds of euros on gifts alone
. It’s a continuous annual cycle of spending and the strain that it puts on a consumer’s budget even has its own name –

holiday financial hangover
, referring to the time after the holidays when expected and unexpected costs put people in a tight financial spot. Enter, open banking – the ability to connect your bank account to apps that help alleviate the post-holiday side
effects.

Open banking is now used across hundreds of financial apps in Europe, including apps that help manage larger payments or plan your budget. Open banking has helped create and streamline financial services and provide solutions, both short-term and long-term,
to alleviate January monetary stress.  

Buy Now, Pay Later

A short-term option that can help with post-Christmas financial strain is Buy Now, Pay Later (BNPL). The solution refers to a type of short-term financing that allows consumers to make purchases, receive their product after a smaller upfront payment and
pay for the rest gradually over a predetermined amount of installments. It is typically interest-free. It is becoming increasingly more popular in 2021-2022, with statistics provided by PayPal showing that the increase in use of BNPL for

Black Friday shopping was up about 400% year over year
. Data intelligence firm Morning Consult has
found that 80% of US shoppers were planning to utilise the option for their holiday gifts in 2021, with
1 in 5 UK consumers following suit

 The benefits of BNPL are clear. The solution allows to spread the cost of a purchase into more manageable parts that can be paid, interest-free, over the span of several months. This not only lets buyers have an easier time with their budgeting, but also
gives opportunities to acquire higher priced items, even if their price tags would normally make them unattainable, or too big of an upfront investment. This solution is especially popular

among Gen-Z and millennial buyers
who are opting for BNPL over credit cards with high interest rates. 

Time, being a valuable resource when needing to shop for gifts and Christmas dinner, is also a benefiting factor. When applying through monthly installment credit through BNPL solutions such as

Klarna
credit checks will be performed to determine reliability and whether the scheme would be appropriate for a specific buyer. This check can be performed within seconds through an application, using open banking. The program will verify the customer’s
identity and analyse their credit report in real-time, providing a decision almost immediately. 

The use of BNPL is especially popular within the US and UK markets, where 44% of US buyers determined BNPL to be

a somewhat or very important factor
on how much they will spend during the holidays, and

54% of UK retail customers
claiming that it will help them spread the cost of their Christmas shopping. 

It is important to note that the overuse of BNPL services or lack of clarity in the terms and conditions of the option can lead to customers falling into a debt hole. 

Personal Finance Management applications

When used responsibly, BNPL can ease some concerns and monetary hardships in the short-term, while Personal Finance Management (PFM) applications can help track spending and achieve long term goals. Apps, such as
Budget Bakers and
Spendee
gather transactional data and information on spending habits all in one place, pulling it from bank accounts through secure open banking connections. The data is then presented to the user in a clear and concise manner, giving them an accurate snapshot
and analysis of where their money goes. Using this information, users can pinpoint areas of large expenditure, manage their funds through a single platform and can set goals for the future. Using the data to create a budget for the upcoming year can also

lower feelings of stress
during the financial hangover of January and will let customers step into 2022 with a positive outlook. 

BNPL services and PFM apps are beneficial tools for alleviating financial hangover in the new year. Established budgets and payment plans assist in managing monetary pressure and stress following the holiday season and help stay on top of financial new year’s
resolutions. Establishing a financial system by setting budgets and managing funds responsibly will ensure that next January will be a fresh new start, rather than a holiday hangover.

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