API's Will Be The Adviser's Products Of Tomorrow

API's Will Be The Adviser's Products Of Tomorrow

One recurrent thought I have on my travels around UK Financial Services and especially at many industry conferences on Open Banking is “Will API’s become the new advice products of tomorrow?”


People historically have not moved bank regularly, now they will.


Data lying dormant in bank accounts will become as easy to exploit as personal details online.


What are the opportunities for Wealth Management, Investment Advisory and Independent Financial Advisers to work in collaboration with FinTech’s and the new challenger and legacy banks to move market developments on as it becomes easier for customers to shop around for the best deals?


Next to cash, the ISA is the “go-to” product for consumers and advisers.  How do we create the link to individual savings accounts, ISA’s, pensions and all the other regulated wealth management products?


Where do Corporate ISA’s, which operate via payroll deduction, sit and how can they be linked via an API.


It will also make it much easier for the nearly 7m people who are in the UK gig economy or self-employed (5m), the largest unpensioned consumers in the country, to engage easily on ISA’s or some form of pension provision.


How does this Open Banking vision translate into the retirement planning world? Perhaps it starts with the centralised Pensions Dashboard. The latest soundings from Minister Guy Opperman at the Department for Work and Pensions are that there will be one single, standards-driven platform which all providers will (eventually) be compelled to provide a feed into, so you can see your pension or investment pot (whichever institution it is with) on the Dashboard. There will be more than one dashboard so app and API developers have plenty of development opportunity.

Once would-be and actual retirees and their chosen advisers’ (hopefully) can take a closer look at their array of retirement savings pots online, you pretty quickly get a more holistic picture of the true retirement savings wealth position and likely income levels once fully-retired.


This will all be very attractive to the financial adviser community.


One interesting developments now emerging with the advent of open banking are the collaborative talks between the API creators and the asset management fund groups such as BlackRock, Fidelity, Vanguard and others focussed on offering “cheap investment accounts” aimed primarily at millenial's but open to every investor and positioned on the API platform available within any product wrapper. The idea being to offer investment accounts that offer customers low cost funds rather than picking individual specific stocks. Therefore, the API becomes the consumers “financial control centre”. Charges are not yet clear but holding shares or stocks may be free but trading will attract charges

Open Banking came into effect in January 2018 to shake up the way in which customers both individuals and small and medium-sized enterprises (SMEs) interact with their banks in the UK & Europe. It set out to pave the way for new products and services from those offering mobile and digital banking to help consumers manage their money more effectively and secure better deals for financial services. Acting as a boon for the growing cohort of mobile-only banks, it has also been a wake-up call for more traditional players prompting them fundamentally to reassess the way they treat their customers

In banking, the familiar incumbent businesses have historically relied on inertia to retain customers but this is no longer the case with open APIs (application program interfaces) which enable these customers to share their financial information with other 3rd party providers, switch to other banks much more easily and conduct transactions through banks and non-banks alike.

Whether or not financial advisers may be resistant to embrace change, their clients increasingly are not. Digital access and servicing are now part of banking life for many. Personal financial management tools and round-up savings services are more mainstream, which in turn have prompted customers to take greater control of their finances.

What leads therefore can the adviser community take from the banking sector to help them along their digital journey? The experience among banks offers the advice industry a broad playbook covering product design and positioning, channel, service models and the construction of financial ecosystems or marketplaces. Consumers are used to having instant access to information to decide on purchase decisions in all aspects of their lives. They now expect the same from financial services and wealth providers who, until now, have been slow to the table.

The solutions of the future will need to be fast, highly competitive and able to provide advanced valuation of customers while anticipating their on going needs.

However, as APIs are rapidly being developed to solve a myriad of consumer and business problems, recent research shows that consumer awareness of open banking and their benefit is currently low. PWC and The Open Data Institute found that only 18% of consumers are currently aware of what open banking means for them. This is expected to increase significantly to 64% by 2022 driven by the development of innovative propositions, whose benefits will outweigh current concerns around sharing data.

The conclusion is that, while it won't be immediate, banks will face a real challenge as consumers are predicted to select non-banking interfaces or products for their financial management. This is echoed in a study by Bain, Salesforce and MaritzCX who found that those aged 55 or younger are expected to embrace the advantages of open banking; 65% are open to sharing their personal data with other banks or nonbanks in order to get better products or services. This group, termed ‘high-risk' customers may only account for 15% to 20% of the total customer base of the banks, but Bain, Salesforce and MaritzCX estimate that they make up close to 45% of bank profits. And the majority of these consumers have already started to adopt at least one alternative fintech solution, such as Apple Pay!

Open banking is one of the biggest changes in financial services in a generation. The changes enabled by open banking and comprehensive credit reporting will have a significant impact for customers, data privacy and financial crime, strategy and pricing, conduct and fairness, artificial intelligence, and API's. The evolution from a ‘closed' model, where each financial institution retains and controls the information it collects about its customers, to an ‘open' model, where customer data is shared, has the potential to prompt a whole new ecosystem that shakes up the competitive landscape with the creation of new products and services based on data.