With the rise of internet-based banking and other sources of finance, the last few years have seen a huge change in financial services. Can these disruptors replace the status quo across sectors such as banking, lending and business loans or will traditional financial institutions prevail? More importantly, how can you, as a student, make some money from these innovative companies?
If we begin by analysing the banking sector, we can identify many changes as of late. Many of you will already be aware of, and maybe even using, alternative types of banks. These include the German company N26 and UK-based Revolut and Monzo Bank. They typically offer lower/ no fees and great rates on withdrawals from ATMs, but most interestingly are the rates for exchanging currencies. Right there is how you can save money by using these accounts, as opposed to traditional debit cards. By offering foreign currencies at the interbank offered rate, Revolut et al eliminate the service fees banks charge and pass on the savings directly to you. These startups have disrupted the big banks, who are battling the time-consuming bureaucracy linked with big banks before they can launch competing services. However, they will inevitably catch up, and may offer even better promotions to win back clientele, which is something you should keep an eye out for.
Elsewhere in the sector is the nascent ‘open banking’ phenomenon. This trend revolves around transparency regarding account holders’ data and empowering people to have more control over their personal finances. It is mainly done through apps on your phone, using open-source databases. What does this mean for consumers? With banks being more transparent, we will be able to see who offers the best deals, interest rates etc. This, in turn, could lead to increased competition between banks, which would mean lower fees for consumers. We have seen this beginning in Ireland already, with KBC’s recent announcement that their app would allow KBC customers to see other bank accounts within the KBC app. For instance, if you had a KBC, Bank of Ireland and AIB account, the KBC app would allow you access to all three. Lastly, we see An Post trying to get a slice of the action with their Smart Account. This card gives you €30 simply for signing up, and offers up to 10% money back on certain expenses, all for a minor fee of €5 per month. To summarise, we can expect to see lower banking charges and more transparency in the near future as more institutions begin adopting ‘open banking’ initiatives. The plans on offer at the minute are extremely attractive in order to lure people away from mainstream competitors, so signing up now may be a wise way of saving yourself some money.
If you’re looking to begin investing or to diversify an existing portfolio, the loans market has shifted lately, in a way that might interest ambitious students. New types of loan providers have popped up and have successfully poached many customers from traditional banks. Take the concept of crowdfunding; getting a large ‘crowd’ of investors to each buy a few shares in your business. The return for investors depends on the type of crowdfunding in question. Indiegogo and Kickstarter are rewards-based, meaning that when you buy shares, you are rewarded with a product/ service from that company. Closer to home, Spark Crowdfunding offer Ireland’s only equity crowdfunding opportunity. Here, you can purchase shares in companies with high growth potential that could earn you large returns if the company succeeds. The aim is for the company to increase in value, where you will then be able to sell your shares at a profit. With prices for a share beginning at €50, there’s no reason that, as students, we can’t begin investing and creating multiple revenue streams for ourselves.
Another indicator of this trend is the rise of Peer-to-Peer (P2P) lending. The growing popularity of websites such as LinkedFinance gives businesses and individuals an opportunity to raise capital much quicker than traditional banks can manage and at a fraction of the cost. Meanwhile, it offers investors the option of placing local companies in their portfolios whilst also earning returns of up to 17.5%. Again, people are free to begin investing at a small rate of €50. With €6.5m going to investors as interest (ie, profit) on that platform alone, it’s clear that many people are profiting from lending money here. Hard not to hop on the bandwagon if you ask me, even if you are just on a student income.
In short, there are multiple ways that, as students, we can both save and make money by utilising the new financial services on offer to us. There are many, many more ways than the ones described above, but these are the easiest to begin and should get you on the right path. Financial wellbeing is not as daunting as it seems, and with the introduction of these alternative services, it’s only going to get easier.
By Alex Lohier – Business Editor