Open banking is transforming digital wealth – but what’s next for the industry?
Digital wealth providers have embraced open banking, but there’s more to come, say TrueLayer, Investec and Ikigai.
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 experienceAs 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 dateIt’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 technologyBobby 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.