Your IndustrySep 23 2016

This will change financial services forever

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I’ve just met a man with a vision that, if he pulls it off, will change financial services forever.

Contractual obligations (he is in the process of leaving his FTSE 100 employer to pursue his project) mean I can’t yet tell you his name or the title of his venture.

But here is the inside track on his ambition – to highjack the £3.5 trillion UK long term savings market and give control of it back to the public via a bridge between technology and personal finance.

Instead of companies telling customers about what they want to sell them, this guy is creating something that will see individuals transmit to companies what products and services they need.

How? By the marriage of application programming interfaces (APIs) and digital identities.

APIs allow the creation of applications which access the features or data of an operating system or other service – meaning they can make financial services much more joined up.

A digital ID is secure information about you – for example income, outgoings, debts - or a company, that allow our access to computers and the services they provide to be automated, and make it possible for computers to mediate relationships.

Far from futuristic pipe dreams, these technologies already exist. But no-one is using them like this guy wants to use them – to scale up financial services for the mass market at a much lower cost.

“What I don’t like at the moment is that all the good stuff in our sector is going to the wealthy to get them wealthier,” he told me. “We need more people to plough back in what’s good about technological change into society.”

In his vision, an individual seeking some ‘fulfilment’, like buying a house, will choose who they share their digital ID with using APIs to link up your employer’s payroll department to your mortgage broker, estate agent and bank.

To meet suitability requirements his company, which he hopes will spark this revolution, will have joined up arms in health, finance and what he terms ‘the planet’, uniting his three goals of sustainability, transparency and social inclusion.

He says the “tipping point” for the industry is the government-led pension dashboard project, where details of your past and present pensions are in one place.

The pension dashboard is a key part of “the evolution that needs to happen where you are the custodian of your own data”.

The extension is that data on your income, debts, insurance, savings and spending will be part of your digital ID, which you can share using an API, probably via your employer.

It will include the goals people want to achieve. It will analyse the categorisation of spending, for example ‘at month end you had £200 left to spend and this is what you did with it’.

And this is where financial advisers come in - this information can be transmitted to you without a lengthy meeting to carry out a factfind, or can be sent to a robo-adviser equivalent.

Interest in the project is already coming from adviser consolidators and nationals keen to turn a profit though volume and scale.

Which brings us to who will pay for this revolution.

One option is a levy, similar to the Money Advice Service (Mas) levy. Currently some of this goes to charities like Citizens Advice, a step he brands “too late”.

Instead he wants a “preventative framework” that catches people before they turn up at a branch of CAB in tears with a shoebox of final demand notices.

Alternatively there could be a government sponsored tech solution, joining up with organisations like The Pensions Advisory Service.

There is also a budget at an employer level for employee wellness of around £25 to £30 per employee so he is considering tapping into that.

Crucially there will be a route to execute on financial advice suggestions generated by his system via links to comparison websites (to ensure transparency on price). This would be paid for by the comparison site or the robo-advisers people are sent to.

For robo-advisers this would be a much cheaper way to acquire customers.

Currently robo-advisers could take up to a decade to make a profit from their clients, according to analysis from IRN Consultants, as each new robo-advice customer signed up was losing the company £162.50 on average in the first year and only making £17.50 in subsequent years.

If the above comes to pass – the plans of someone who has worked at a big name financier for two decades – it would create the environment for robo-advisers to flourish and dramatically reduce the data burden on all advisers, leaving them free to manage relationships not spreadsheets.

It could also create the conditions for some businesses to become obsolete.

In his pitches to national advice firms the man with the plan is posing the questions; ‘do you want to make a costly update of your platform technology, or do you want a whole new system to replace it for the long term?’

The answer may not be for companies to give.

The FCA is fiercely focused on the provision of mass market advice. It has set up a new unit to help firms develop automated advice that can be delivered more cheaply than the post-RDR standard of expensive face-to-face full service for high-net-worth clients.

The government is also behind improving access to advice, with the Treasury jointly authoring the Financial Advice Market Review, part of an initiative to close the gap between those who need advice and those who can afford it.

Now this guy is going to the FCA and Treasury and telling them he’s working on the fix they’ve been looking for.

Watch this space.

 

laura.miller@ft.com