A little over two and a half years ago, open banking regulations came into force in the UK. Since then usage has grown rapidly, and at the beginning of this year, customer numbers passed one million, doubling in the six months to January, writes Max Emilson, chief revenue officer of TrueLayer.
Open banking is technology that enables third party applications to connect directly to a customer’s bank or checking account via open APIs, with their consent.
While you’ve likely heard of fintechs transforming financial services, such as Monzo or Revolut, the changes that allowed them, and many hundreds of other digitally-native services to emerge, have begun to seep into wealth management too.
The first wave of these ‘fintechs’, typically challenger banks, focused primarily on delivering an enhanced customer experience. open banking is now primed to help wealth management evolve in a similar way, opening up some exciting opportunities to serve clients digitally.
Why should you care?
We’ve identified three key use cases for wealth management: user onboarding, account top up and withdrawal, and account aggregation, which all serve to create personalised and frictionless user journeys.
And this is just the beginning of what open banking can deliver. Its impact will be felt in numerous ways, from the onboarding of clients to how financial advice is created and actioned.
Let’s take user onboarding. open banking enables a lot of the KYC requirements for new customers to be immediately and accurately fulfilled, reducing the chance that potential customers won’t convert, reducing friction and creating an improved user experience.
For wealth managers, this delivers significant time and cost savings. What’s more, with open banking, wealth managers who offer credit for investments, can reduce their risk by instantly performing credit checks.
Now, let’s consider account top up and withdrawal. Last month, Nutmeg became one of the first digital wealth management companies to leverage open banking payments to fund customer accounts.
Paying in this way is highly secure and faster than other payment methods, with up to 80% lower transaction fees compared to other online payment methods such as card schemes. What is more, allowing consumers flexibility around money withdrawals from their accounts can give wealth managers the competitive advantage, building loyalty with their customers and standing out to potential new customers.
By making payments faster and cheaper, consumers can make more investment decisions with their wealth manager or wealthtech platform.
The last point is account aggregation. Money managers already provide consumers with an overview of their money and straight forward financial advice. The natural next step is to combine bank account information with other data that make up a consumer’s financial life – savings, existing investments and pensions.
Gaining access to a client’s financial information in near real time -– assuming there is explicit consent -– enables wealthtech platforms to build investor insights and offer a more complete and personalised investment advice capability.
We’ve seen this in practice with Revolut, who enabled their users to connect all of their external bank accounts to Revolut and manage everything from one place.
Key benefits include offering services and products that match an individual’s needs, pre-empting questions or proactively managing issues that may arise and, as a result, increasing customer satisfaction.
What comes next?
This is a brief snapshot of some of the use cases that are changing wealth management.
The good news is that there is still time to examine how open banking’s goal of driving innovation will reshape your business. But it needs to happen before the window of opportunity starts to close.
This may mean building out a digital offering from scratch, partnering with or acquiring promising open banking-based tech or wealthtech platforms, automating their services, or investing in their own innovation.
The ultimate winners will likely do some combination of all four, and also realise the potential of open banking to broaden their customer base beyond high net worth individuals.
After all, if open banking enables people to exert greater control over their finances, while solutions such as payment initiation reduce friction, there will be a greater pool of people interested in the services offered by wealth managers.
The flipside is that these possibilities are leading to a boom in startups competing with traditional institutions. These fintechs will increasingly eat into different service areas provided by wealth managers, as they have with retail financial services.A common refrain doing the rounds in techie circles is that, ‘every company will be a fintech’.
Cliché aside, it is a very apt way for wealth managers to think.
In the short term, open banking offers a host of simple benefits to clients.
However, in the long term, for businesses that do not adapt, it creates a real threat.
The successful wealth managers will be the ones that seize the opportunity and incorporate open banking-based features into their services to both future proof their businesses and also enhance the offering to their customers.
This article was written for International Adviser by Max Emilson, chief revenue officer of TrueLayer.