To borrow from William Shakespeare, some data is born open, some becomes open, and others have openness thrust upon them.
In UK financial services, the open banking rules introduced in January 2018 give account holders control of their information and open up their data to numerous new companies.
There has always been a healthy amount of scepticism around giving away personal data and information – and for good reasons. But developments such as open banking have the opportunity to change the way industries use and share data.
Now that the initial hype has died down, there are exciting opportunities for investors, advisers and providers in the retail investment industry from open banking and open data initiatives.
While it is the banking sector that is likely to be most affected by the new regulations, investors, financial advisers, platforms and other providers also stand to gain.
There are exciting opportunities for investors, advisers and providers in the retail investment industry from open banking and open data initiativeAt a roundtable Bravura recently hosted on the topic, industry experts identified several ways that these audiences will benefit from the new cornucopia of openness in financial services. We have explored three of these in more detail below.
1. Increase efficiency and drive down cost of financial advice businesses
There was a healthy 3 per cent increase in the number of financial advisers in 2017 according to data from the Financial Conduct Authority. At the same time, there was 18 per cent growth in the number of new clients paying ongoing advice charges.
Key points
- Open banking rules introduced in January give account holders control of their information
- Open banking can help increase efficiency of financial advice businesses
- Access to banking data could also allow firms to engage savers in the benefits of investing
There has been a lot of talk about the ‘advice gap’, but the focus has now shifted to addressing the ‘capacity gap’ – in other words, increasing the ability for advisers to work with more clients and thereby improving the access to advice.
Open banking can help increase the efficiency of financial advice businesses, which could in turn free up advisers’ time to focus on more value-added services, as well as raise the number and type of clients they work with.
Advisers already rely heavily on application programming interfaces to link various parts of their businesses, and will often use these APIs to link cash flow modelling tools to the back office and to suitability report-writing services.
Open banking will mean that data can be automatically fed to the adviser practice. Cash flow modelling is usually based on a client verbally explaining to an adviser how they have spent their money. Often, clients share bank statements, which leads to a lot of time spent manually putting the information into the fact find. Under open banking, the process can become more streamlined and efficient.
By harnessing these economies to lower the cost of advice, this should also make it more viable for advisers to service clients with smaller assets, and may even bring access to financial advice to those who need it most, such as people in debt.
For example, services could be developed to help with debt management, using transactional data to closely analyse where spending could be reduced to pay off debts in a manageable fashion.
2. Improve quality of retirement planning advice
Financial advisers are acutely aware of the importance of the advice they are giving to clients on the glide path into retirement. Helping customers understand how much they will spend in partial and full retirement is one of the biggest challenges they face.
Individuals often think they will spend less in retirement, but in reality their spending tends to remain the same in the early years. Open banking presents an opportunity to help investors understand how spending habits evolve in retirement and plan accordingly. It also introduces an opportunity for companies to analyse large data sets to better understand spending behaviour.
This analysis would allow advisers to point to patterns to help investors understand typical spending behaviours. In a systematic way, the adviser could explain how other people have behaved financially in retirement.
3. Nudge investors to optimise performance
Well-designed initiatives like auto-enrolment have been hailed as successful implementations of behavioural psychology for better financial outcomes.
The hope is that nudging investors – the strategy at the heart of auto-enrolment – can achieve further gains to make good decisions for their financial well-being.
There are several apps that seek to harness this mindset and prompt investors to save more. But as with most things, timing is everything and apps that prompt people to save when they are in the midst of spending may be set up to fail.
As investors’ spending increases, they may not have the available funds to save. However, by pulling in banking data, apps could be smarter about prompting people to act at the moment when a healthy amount of funds are available.
Access to banking data could also allow companies to engage savers in the benefits of investing. Illustrating the returns that savings could earn if invested might nudge people to do more.
Comparisons could be offered to show the historical performance of an individual’s savings account. Using the data available from open banking, analysis could show the return on capital for saving versus investing.
Most people travelling through London regularly will have benefited from Transport for London’s open data.
According to TfL’s website, more than 13,000 developers use over 80 of the data feeds it makes available.
The real-time data, available through an API, gives developers access to timetables, service levels and disruptions. TfL’s own research suggests that by giving data to developers, it “is improving journeys, saving people time, supporting innovation and creating jobs”.
Without these open APIs, services such as CityMapper, Google Maps and Apple Maps would be far less reliable.
Open banking is part of a much broader trend to give customers access to and control of their data. Unlike most other industries, regulators have mandated the opening of banking data. In many other areas, open platforms have been driven by disruptive challengers or by a philosophical belief in the organisation in the standard of openness.
I believe companies that innovate and embrace the opportunities from open platforms and open data stand to win – and we can all benefit when the value of openness is wonderfully thrust upon us.
Nick Parsons is global chief technology officer at Bravura
