Open banking is wealth management's new competitive advantage

Wealth platforms that use open banking are about to get a big data advantage over their rivals.

Background image
Imagine this: stock markets are surging (again) and Australians are flooding back to their trading accounts. But this time, one trading app has made it possible to instantly move money from bank to broker – rather than the two days it takes all of the others. In the increasingly crowded market of share trading platforms, instant bank transfers made possible by open banking payments will make all the difference to the customer experience.From automated spending round-ups to dollar-cost averaging, the extra features enabled by open banking data are set to give early adopters an edge in the competitive world of wealth management, where platforms differentiate on their user experience. It's still very early days for open banking and Australia's wealth management platforms, as the final access models went live in February. But drawing on our depth of experience working with wealth management platforms in the UK and Europe we can forecast the future in Australia – or at least, for those early open banking adopters who want to grab the emerging opportunity.

Solving share trading settlement pain

For trades via the Australian Securities Exchange, when you buy shares or other securities, there must be enough money in your settlement account with your stockbroker on the second business day after your order has traded.For new generations of Australians raised to expect instant everything, the requirement to pre-fund that settlement account, by moving cash from your bank account to your stockbroker a couple of days in advance of the day you expect to trade, is one of the biggest pain points for share market investors. By the time the money arrives, your trading opportunity could have doubled - or disappeared - depending on the market’s movements. How are you supposed to know two days in advance how much money to move?If you decide not to trade, or you have some left over uninvested funds or share sale proceeds, you don’t earn interest on it when it’s in your settlement account and you again have to wait a couple of days to send it back from your settlement account to your bank. While instant bank transfers using CDR payment initiation will need to wait until open banking payments infrastructure is approved – an element that was endorsed by the Federal Government last year – there are a swathe of customer-pleasing use cases that wealth management platforms can use to eliminate friction.Take direct debits as an example. Some trading apps allow settlements to be directly debited from a nominated bank account, so cash isn't sitting idle in a trading app. But if you don't have enough in the bank account, your trade will fail. A key feature of open banking data will be the ability to query, with the customer's permission, whether they have enough cash in their bank account to settle a trade before taking the direct debit. The app can then send an SMS reminding their customer to top up their account, or make other arrangements, rather than incur the problems of a failed settlement such as a late fee and possibly trading restrictions or even a suspension. And those instant bank transfers? TrueLayer data shows that 24% of traders in Europe have missed out on a trade because cash simply didn't arrive in their account fast enough. Not only is this important for the whole user experience, but we know from our UK and Europe payment API that it cuts down on fraud and reduces fiddly operational costs – like mistyped account details.

Making round ups secure and friction-free

Spending round ups have become a favourite saving and investing tool: you spend $4.50 on a coffee, the sum is automatically rounded up to the nearest dollar, and 50c is sent off to your savings account or investment fund of choice. But pain-free investing today comes with a catch: in order for a third party app to 'see' a user's transactions, they need to use screen scraping, which asks a consumer to hand over their banking login password – something institutions like CBA and Bendigo Bank are coming out strongly against. Screen scraping offers no oversight over how their financial data is used, where it is kept, or even what information is being scraped. With open banking, the opposite happens: your customer knows exactly what data they've shared, that it will be stored according to open banking regulations, and can revoke that permission at any time. Impact investing platform Tickr, a UK TrueLayer client, said as long ago as 2020 that open banking-based roundups made users up to 25% more likely to engage with the platform over 90 days.

Smoothing out customer onboarding

If your customer doesn't have the right documents at their fingertips, onboarding for wealth management apps can sometimes take days as identity, bank account, and credit checks are completed.Open banking data APIs are set to remove some of the friction from this process, by allowing apps to verify account ownership and authenticate accounts directly with the bank, speeding up AML processes and meaning that users don’t need to manually upload bank statements. It also improves efficiency and automation for wealth managers, creating less pressure on operational teams.Aussie investment platform Stake is already using TrueLayer's open banking APIs in its UK operations, to root out friction, reduce costs, and amplify the whole user experience.

Making advice personal again

Wealth management is not all round ups and share trading apps. Advice is one of the biggest sectors adopting technology solutions, as advisors and financial planners seek to reform their industry following the Banking Royal Commission.Open banking can give wealth managers and advisors access to their customers' financial data – without the risk of screen scraping or having to wait for documents to upload - or asking the customer to type the data into a spreadsheet. The result is an empowered advisor who can give genuinely personalised advice based on real-time information on spending, savings rates, debt servicing and even what kind of assets a person has by seeing dividends, for example, coming into the bank account.By being able to see a full picture of their customer's financial data, advisors gain a better understanding of their investment behaviour and risk appetite, and can better target strategies for that person.
Background image
Background image

Ready to get started?

Talk with one of our open banking experts