Rob Gagliardi – Digital Product & Propositions Manager, Bravura Solutions
Giving away personal information/data has always felt like a slight invasion of privacy. Having your information then shared to a third party makes many very uncomfortable. Privacy laws are stringent and for good reason, but has the introduction of open banking changed the way many industries will use and share data?
Open banking, introduced in January this year, will allow banks to share customers’ information with a wide range of companies – albeit with the individual’s approval.
The reforms were introduced following an investigation by the CMA that found that UK banks are not competing sufficiently for the consumers benefit. The ability for this enhanced data sharing allows customers to, in theory, get better deals on mortgages, savings and other financial products, which for the consumer could be a potential revolutionary change to the market.
Of course it is the banking industry that will be the most directly affected by the introduction of this new regulation, but there are also huge potential knock-on effects for other areas of the financial services industry.
- Automating Fact Find and On-boarding
The fact find is the beginning of the adviser relationship and the first step in understanding a client’s circumstances. Whilst the process is long, it is essential and does take up a lot of valuable time. This could be made more efficient / less manual if a client agrees to link their banking data as part of the on-boarding process. Some of the information that is normally input manually and upfront by the customer could be collected through the new API (Application Programming Interface) with the client only needing to validate the information.Much of the fact find could become automated, freeing up time for the adviser focus on the value-add, like gaining a deeper understanding into a client’s goals and aspirations.
- Dynamic Financial Planning
Banking data would yield specific insights into how consumers manage their finances – spending patterns, savings, income, levels protection etc. This data could be collected in real time and therefore has the potential transform the way financial planning is delivered: from a static plan crated at a point in time to a more dynamic process, automatically optimised when changes are detected in the client’s data.
For example, a client’s retirement cash flow plan could be automatically adjusted if their income levels have increased. An actual adviser may only be required to interact for certain events and triggers e.g. when a client’s needs become more complex.
- Financial wellbeing
With the responsibility for savings for one’s future moving from the employer to the individual, it’s becoming critical that people have the necessary skills to make the right decisions so that they save enough for their retirement.
Open banking data could be used to create new tools that “coach” people into improving their financial decisions by delivering “just-in-time” education and guidance as they spend and save. The type of guidance provided could change as their transaction data changes (e.g. consumer becomes a more proficient at saving)and eventually lead to more sophisticated solutions like investment advice, say for instance, after they have built up enough of an emergency fund.
- Personalised product recommendations
Access to a customer’s transactional data should enable providers make personalised product recommendations as the data will yield insight into a tax efficiency, insurance policies, disposal income and levels of debt. Product recommendations could be personalised in two ways; existing products made available at relevant times or the product itself could be customised for the client.
For example, a client could take out an insurance policy to cover their mortgage. The price they pay could be based on the level of coverage (loan amount) they need at the time. Through the banking data, the provider could detect the levels of equity being built up and adjust their charges accordingly. As the customer gets older, the provider could suggest transitioning to other types of products, such as critical illness cover.
- Targeting Digital-First Clients
Advisers and Wealth Managers are measured on the quality of the client relationship they have with clients and ultimately the advice they give. In a digital-first world, how do advisers continue to attract, engage and add ‘human’ value when people live their lives digitally and have less time than ever to seek out advice?
Reimagining a proposition will become essential in an age where millennials will soon be in receipt of the largest generational transfer of wealth in history. The opening up of banking data gives firms unique opportunity to create new and inventive ways to grow and protect their client’s wealth. Whilst it is certain that open banking will see new entrants enter the market, it is also an opportunity for incumbent firms willing to innovate.