D2C platforms under threat from open banking

D2C platforms under threat from open banking

Direct-to-consumer platforms risk finding their businesses undermined by the open banking regime, according to analysis from The Lang Cat.

The consultancy said the threat was highlighted by the growth of wealth management apps, which allow consumers to see all their finances in one place.

Open banking, first proposed by the European Union, allows customers to share their current account information securely with other third-party providers, who can then integrate this information into their services.

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Examples of market entrants making use of open banking are Moneyhub, Yolt, and Squirrel Investing.

These companies allow consumers to see all their money in one place by pulling in data from bank accounts, as well as any loans, credit cards, savings and investments they might have, to help set and stick to a budget and draw up long-term savings goals.

In time these players, and the banks themselves, could undermine traditional D2C platforms, as they start to integrate more successfully with new technology, The Lang Cat said.

One example of this provided by The Lang Cat was HSBC, which recently launched its Connected Money app offering a range of budgeting, saving and aggregation tools.

In a recent report the consultancy stated: "While this is a fast moving and innovative market, few consumers are really getting on board. For that to happen will potentially take the familiarity and financial clout of a big household brand.

"In time, this could lead to the banks fulfilling their early promise in the direct investing market, whilst seeing off the threat that open banking initially appeared to represent to them.

"Direct platforms aren’t insensitive to all this, and we’re starting to see some firms dip their toes into the water, or at least announce that they’re going to, once someone else has checked there are no jellyfish.

"Hargreaves Lansdown and AJ Bell Youinvest have probably been the most vocal in this regard. However, they and their peers will have to jolly along, or the banks will have sorted it and they will be simply supplying data for someone else to crunch, and that’s a dangerous place to find yourself."

The Lang Cat also produced a range of heatmaps, highlighting which direct-to-consumer platforms were the most expensive.

Among the "do-it-yourself" Isa providers, Cavendish Online and Close Brothers Asset Management Self-Directed Service were the cheapest for assets up to £25,000, both charging 0.25 per cent.

For larger investments, Halifax Share Dealing and IWeb were the cheapest, both charging 0.01 per cent for assets over £500,000 and the latter charging nothing for assets of more than £1m.

Among the "do-it-for-me" Isa providers - mostly robo-advisers - ETFmatic and Evestor had the lowest cost, starting at 0.6 per cent and 0.48 per cent respectively for investments of £5,000.

Investec Click & Invest and UBS Smartwealth, were the most expensive since they use actively managed investments and discretionary management teams, with the former costing 1.25 per cent for an investment of £15,000 and the latter costing 1.29 per cent for the same.