Open banking is transforming digital wealth – but what’s next for the industry?

Wealth management platforms like Freetrade, Trading 212, Nutmeg, Ikigai and many others have already built open banking functionality into their online offerings this year. Because of this, their customers, especially retail investors, are seeing the benefits of a more seamless account funding experience.

But what now? As much as features like instant bank transfers, powered by open banking, are improving the online payment experience for investors, legacy infrastructure and out-dated tech continue to cause friction and inconvenience for both investors and wealth managers. Is open banking the answer?

The insights in this article come from a panel session at the recent AltFi Digital Wealth Forum 2021. You can watch the recording of the session here.

Wealth management platforms will live or die by their user experience

As fintech firms have opened up wealth management to the retail investor — who had previously little opportunity to make meaningful returns from capital investment — the fight for customer loyalty has become increasingly intense.

Investors aren’t afraid to move to another provider in search of a better onboarding experience. As with any other industry that has been revolutionised by new technology, a seamless digital offering is now seen as table stakes by users.

For example, studies show that in financial services, 40% of consumers abandon bank applications before they’re complete. Additionally, TrueLayer research with YouGov showed that 61% of investors won’t tolerate a signup process lasting more than 10 minutes.

Account funding has been the most compelling use case to date

It’s perhaps no surprise then, that instant account funding has so far been the most compelling use case for open banking payments in the wealthtech space.

Before, new customers faced a frustrating experience to add funds. Their options included cards, which are slow to settle and prone to fraud, or manual bank transfers, which provide a poor user experience.

Open banking offers an alternative to this pain. Instant bank transfers offer a secure, instant and low-cost payment option. 24% of investors across Europe had missed out on an investment opportunity because funds had not appeared in their account quickly enough. The ‘instant’ part of instant bank transfers is vital in wealth management and investing.

Ina Browning, VP of Operations at wealth management platform Ikigai, echoed the importance of instant bank-to-bank payments: “We recently released a feature using open banking where clients can initiate payments in the Ikigai app from other bank accounts to make it much easier to start saving and investing regularly.”

It’s that regular funding that Ina sees as the key to long-term gains.

The next step for wealthtech combines open banking with other technology

Bobby Chadha, Head of Product at TrueLayer, is confident that open banking can offer solutions beyond account funding: “There is really an opportunity to transform the entire transactional investor experience using both open banking payments and data. It can make key customer interactions easier, such as to sign up and onboard customers quickly and at scale, or enabling instant account funding.”

But he also recognises that to create a true end-to-end payments journey, which includes payouts, open banking needs to be combined with other technology. After all, there are pain points throughout the entire investor experience from account verification to advising, all the way to withdrawal of funds. Building this end-to-end journey will require a holistic approach with open banking at its core.

Bobby explains: “At TrueLayer, we do recognise that open banking can’t solve for everything, so we’ve built on top of open banking rails to enable instant payouts for example. This means that wealth managers can enable their investors to instantly withdraw funds, which makes for a great user experience.”

Research shows that instant withdrawals actually lead to customers depositing more money. On average, 37% of current investors would consider depositing more funds if instant payouts or withdrawals are available.

Open banking benefits retail investors and high-net-worth investors, just in different ways

While the rise in wealth management apps has opened up investing to the average retail investor, open banking also has potential to improve the experience for high-net-worth investors and their asset managers.

John Elliott, Head of Fintech and Open Banking Partnerships at Investec, thinks open banking will be a lever to improve relationships at that end of the market, which has always been crucial.

“With open banking your data capture is a lot more robust. There is a lot less risk around account information,” explains John.

“The quality of the interaction that the wealth manager can then have with the client is much better, because they’re not sitting there saying ‘is that a seven or a three on your bank account?’”

Open finance will unlock new value for wealth, but investors are missing the “and what” insight

Open finance, often seen as the next step in the open banking journey, presents new opportunities for wealth managers and investors. It opens up access to new financial datasets that don’t fall under the remit of open banking in the UK, such as mortgages, savings, pensions, insurance and consumer credit. While the Financial Conduct Authority (FCA) haven’t committed to a timeframe for open finance, forward thinking businesses are planning for the future.

Investec’s John Elliot says open finance will “allow you to provide more sophisticated services to more sophisticated clients, bringing together your wealth management activities along with your non-wealth activities, so you can start to provide high net worth clients with the types of services you normally see in corporate banking – like multi-country, multi-currency treasury, sweeping, settlement and the like.”

On the retail side of the market, investors could start to consider assets like their homes within their wealth portfolio, adds John, giving them a better view of what their “total balance-sheet looks like” outside their tradable wealth assets.

While more data unlocks more value, Bobby Chadha believes the real opportunity is in giving retail investor better insights.

“It comes down to providing relevant insights,” says Bobby. “Many personal financial management tools today give you the dumb data, but the ‘and what’ is missing. It would be awesome to see if we can make the insights relevant for the people, which can add genuine value such as helping them make or save money.”

Start building a better investor experience today

Open banking and open finance present both a risk and an opportunity to wealth management providers.

Those who fail to meet customer expectations for a seamless end-to-end digital investment journey will be left behind.

And those who can rise to new challenges, such as providing smoother experiences and better insights powered by open banking and open finance, will position themselves as leaders.

To understand how to start building a better investor experience, we’ve carried out extensive research in partnership with YouGov. Download your copy of the full report and make sure your brand is delivering the kind of experiences your current and potential investors expect and demand.