This year, Nutmeg became the first wealth manager in the UK to give customers the option to top up their investments using open banking payments, through TrueLayer. We spoke to Nutmeg Product manager Charlie Masters to find out how open banking is driving value for customers – and what impact the global pandemic, Brexit and digitisation is having on the wealth management industry.

What’s keeping Nutmeg busy at the moment?

Financial wellbeing and helping customers to have a clearer picture of their full financial circumstances is crucial at the moment. With so much uncertainty, we have seen customers wanting to add some security to their own financial futures.

We teamed up with fellow fintechs Yolt, Emma and Money Dashboard earlier this year, giving customers the ability to see their Nutmeg investments alongside their current accounts, savings products and credit cards – giving them greater control, transparency and oversight of their finances. We’ve also launched a number of tools and calculators to help people better understand if they’re on track to reach their financial goals.

How is Nutmeg using open banking to drive value for customers?

Before TrueLayer, the majority of our payments came through cards, which take a couple of days to arrive, meaning that customers were delayed in getting their money to market. Bank transfers were also used sometimes, but we couldn’t track much metadata on these transfers – they just landed in the client money bank account which we then had to allocate.

Open banking payments are instant and more cost-effective: money arrives in the client’s account very quickly.

Setting up a bank transfer is a largely manual process. A user must open their online banking website or app to set up a new payee, configure an account number and sort code, and enter a reference number and amount to pay in. Understandably, some users make mistakes, meaning our operations team are met with errors and missing reference numbers, which leads to a delay in getting your money into the market.

Open banking with TrueLayer helps to solve this problem by allowing vendors like Nutmeg to pass payment details to the user’s bank via a third–party payment initiator. This only requires the user to login to their bank and confirm the payment to their Nutmeg account.

It reduces a lengthy user flow to just a couple of taps and delivers a simpler user experience and a faster payment into Nutmeg.

What benefits have you seen since launching open banking payments?

It’s a better payment experience for our users – and more of our users are now choosing it. Before launching, bank transfers accounted for a tiny proportion of overall payments. Payments via open banking are now around a quarter of all payments and growing.

In terms of cost savings, the fixed fee transaction cost represents a significant reduction for Nutmeg, which helps us to keep our fees low.

We’re also working with TrueLayer to implement account ownership verification using its data API to make it faster and easier for new customers to onboard.

Will open banking change the way consumers pay online?

It’s too early to say, but it’s clear that its simplicity and cost-effectiveness could disrupt traditional card payments and direct debits in a way that could benefit customers.

In a world where products and services need to be delivered more securely, more quickly, and at a lower cost, payment initiation via open banking will have a significant role. We look forward to what the future of these technologies will bring.

How has the digital revolution changed wealth management?

It started with day-to-day banking: in 2010, 41% of current account interactions were still done face-to-face in-branch with just 7% done via mobile. By 2015, we started to see a reversal in this trend with 43% of current account interactions done via a mobile and just 20% happening face-to-face in a branch.

To put this into perspective, iPhone users have been able to ask Siri what the weather is doing today since 2011.

Prior to 2020, we were seeing a shift toward more digital, online and app-based financial services interactions. Coronavirus and the lockdown restrictions in 2020 have accelerated the adoption of digital services and changed the way investors think about their investments and wealth management providers.

Nutmeg has benefitted from these changes in consumer sentiment and behaviour as an established digital wealth manager. While traditional providers are realising that being fit-for-purpose in a digital world is no longer a nice-to-have, but is now essential.

The last six months have seen a boom in retail investing on both sides of the Atlantic — has this surprised you?

Not completely – it’s something we’ve also seen at Nutmeg. It has been driven, mostly, by two things. First of all: more disposable income. For those people who have been fortunate enough to have maintained normal working hours and patterns, albeit remotely, their income has stayed the same and their outgoings have dropped because people haven’t been going on holiday, eating out, going for drinks after work or paying a gym membership. As a result, we’ve seen people adding to their investments.

The second factor has been the market downturn around March: while we would never encourage people to attempt to time the market — the idea of ‘buy low and sell high’ – we did see people adding to their investments while the markets were low.

What are the biggest challenges for Nutmeg at the moment?

Like many businesses in the UK, Nutmeg continues to wait for more certainty on the landscape post-Brexit. We have an incredibly diverse workforce, with over 30 nationalities represented at Nutmeg – yet there are still some questions around whether or not we will be able to retain access to the European talent pool after the end of this year.

Do you think greater financial education is needed for retail investors?

Education is key if we’re going to get more people to engage with their finances. Financial literacy was added to the UK curriculum, however, when Nutmeg carried out research last year with school teachers and students, 60% of teachers believe students leave school with a poor level of financial literacy.

There is much more the industry can do to help consumers understand their financial outlook — through tools and calculators, but also by reducing the amount of jargon used.

When it comes to the risks of investing, again this is something that isn’t well understood.

This isn’t helped by the fact we always talk about capital being at risk when investing, but we don’t talk about the corrosive power of inflation on cash savings paying little or no interest.

More can be done to help people understand taking a sensible amount of risk that they’re comfortable with and that will help them to achieve their goals.