This is the second post in a series recounting some of the great discussion from our October Investment Forum. Open finance experts Tessa Lee of moneyinfo, Nick Eatock of Intelliflo, and Ross Laurie of Visible Capital answered adviser’s questions about the advantages to using open banking and client portals, learning from early adopters, practical results from incorporating open banking, and security. Tickets for our next Forum on November 11th are now available, and can be accessed at the bottom of the page. 
Les Sharpe:

I’ve got a number of different bank accounts on my mobile phone, and most of them say, “have you got bank accounts elsewhere, because we’d love to show the balances here”. No doubt there’s an underlying reason for that. So, is it being adopted by the banks for ulterior motives?
Everyone uses a different open system which is complicated if you’re building your own solution, but once the services are up they seem to be working very well.
Nick Eatock:

And I think this probably goes partly to answer the previous question on why aren’t contributors within this space using the technology to do more things? Which is commonly the subtext. They’re not doing it yet, simply because they haven’t got around to it; but they’re moving really, really quickly now. They obstructed initially and yes, to your point, Ian, if this hadn’t been mandated in law this probably wouldn’t have happened.

But now that it has happened and it is mandated in law, they’re going to do their level best to make sure that they can optimize the solution because they’ve had to build it. So our own experience of linking in with banks, just as Ross referred to the nine months required to go through the AISP registration process itself, I think ours was about nine months as well.

So I share your pain, Ross, actually the process of linking with the banks and building to what is called an open standard, was far more complex than it should have been– far more complex. Perhaps a little naively, we had initially assumed that everyone would follow the same standards. I don’t know why we assumed that, given our history we should have known better really but we hoped it would be the case, but actually they do work in quite different ways. And if you’re planning on building your own solutions, you do need to take that into account because it is much more challenging than you think.

Having said that, once the process is up and running– and this probably talks to Les’ point actually about how the banks themselves are using their tools now to aggregate from other banks– actually it works pretty well. There is an inbuilt reason for them now to ensure that these processes do work. And it’s not just about law, it’s about opportunity.

So I think we will find these services expand and grow pretty quickly now. And so once you’ve got them in place I think they’re pretty mature, in fairness. We only launched our service a month or two back now, and we were fearful of how performance would be having gone through the trial process, but actually it’s fared a hundred percent performance throughout.

Advice firms and wealth managers are in a unique position of advantage right now to give clients a holistic view of their finances. You have access to the open banking data on top of all the other information about your client you already had, which puts you ahead of the open finance market. Open banking is a unique opportunity in that it applies to all demographics of clients, simplifying for older clients and giving a better view of day to day spending for younger clients.
Tessa Lee:

I’d agree with Ross and Nick there on what we can learn from early adopters. I think there are some real positives with open banking, though I still think it’s early days. Some providers are more mature than others in how stable and robust they are. I’d say, perhaps in contrast to what Nick’s experiencing, some banks have done their own thing. Some have done their own proprietary APIs and not done open banking APIs.

There’s also modified customer interface, which is another way of doing it, which is nicknamed ‘screen-scraping plus plus’, and as Ross said, the whole implementation was properly, massively over-complicated. But we’ve got there in the end and there are some real positives, as we talked about for the advice process, but there is a real opportunity I think for advice firms and wealth managers right now, because if you think about it you are in a unique position to put together open banking data that your clients can give you alongside all of the other data that you have access to about that client already by the fact that you hold agency over it, and all the data you can get from your platforms and your providers and your insurers.

So you are perhaps uniquely placed right now to give clients a holistic total view across all of their finances. And for those accounts not covered by open banking, we do still have screen scraping for non PSD2 accounts. So if your clients have held away assets or they have auto enrolment pensions that you’re perhaps not looking after, they can aggregate those too. So that’s huge. Now, if you get on with this and start doing it, you’ve got a unique opportunity– you’re ahead of the open finance market right now because of what you can already achieve with your advice firm. So I think that’s certainly something worth looking at what we need to learn.

I guess building awareness of this is probably quite key to success. Adoption is growing and it’s becoming more heard about and more understood, but it’s still fairly low, I would say, it’s not for us the biggest part of what our advisers are doing with in their advice, it compliments what they’re doing and that will build over time, but there’s certainly a piece around building that communication, building trust. Because I don’t think we’ve seen a huge take up of it on top of what people would do with screen scraping.

Anyway, I think that’s changing. I think the perception changing, so don’t get me wrong, it’s hugely positive. But I think awareness is really key to success. And it’s also an opportunity, because the one thing open banking does perhaps surprisingly, is it applies to all demographics of client as well. So we deal with advice firms or wealth managers, a lot of our firms are dealing with high net worth individuals. They tend to be 50 plus age. They will use technology, but of course it also applies to their younger generations when they’ve got dependent kids at university who are more interested in their everyday spending than they are in investments. It applies to them too.

So the reach of this is something we can learn as well. It gives us an opportunity to broaden the reach of advice to other demographics, to the next generation. So lots of opportunities for advice firms, if they act now and get ahead of the game.

What practical feedback have you been getting from intermediaries around how open finance has changed their advice process? Is it true that everyone underestimates spending?
Karl Greenway:

I think there’s been a few bits where we’ve sort of hinted at this, but it’d be good just to understand any feedback at a sort of more practical level that you guys have been getting, particularly from intermediaries around how accessing this data through various bits of technology and has actually improved the fact-find process. I guess I’m thinking from a time perspective, but also in terms of the quality of advice that that enables them to give.

I did also put a little bit of a cheeky one in my question on the chat, which is whether the hypothesis and the assumption that everyone has, that we all underestimate our spending, is proving to be true when it was just getting the hands on this real data. But any sort of practical insight that you guys are able to share would be really helpful.

My adviser is one of our users and I realized when I started using open finance that I had been underestimating my spending. It’s improving quality of advice and we’ve seen a very high percentage of implementation of open banking from our firms.
Nick Eatock:

I certainly underestimated my spending. Funnily enough, one of our users is my adviser as well. And I had previously went through the advice process with him about probably four years ago, and went through a fact finding process and guesstimated my expenditure for that. And whilst it has changed a little bit over the last few years, it hasn’t changed materially. When I then started using the open banking just about a month and a half ago in their account and updated my fact-find, it turned out I was wildly wrong in my original guess of how much I was spending.

So I think the reality is that, yes, this does change things from a quality perspective. And it’s actually quite stressful as an end client completing that information without really knowing it. So I think that this does help, because otherwise you’re worried you’re making mistakes and what are the impacts of that?

So, how much data have we got on it? Its still pretty early in the process for us with open banking. I must admit we’re sort of just under two months in, and I’m just looking at the data now; we’ve got about 1600 firms using our client portal in the UK today. And of all those firms, about 20% are using open banking. So 20% in just under two months, I think that’s a good demonstration that this is happening. We’re now seeing from the rollout with the actual clients themselves, for those advisers that are making it more a part for the new clients that are added.

So the percentage of new clients that have been added over the last two months that have implemented open banking through to their accounts, is very, very high. Indeed, it’s over half. So I would say in terms of technology adoption, this is pretty quick.

The real value is in the accuracy of the fact-find, income and spending data. The idea that high net-worth individuals don’t care about their finances isn’t true, they do care and it helps them when they can see all of their complex finances in one place.
Tessa Lee:

I guess I’d echo what Nick says in terms of the accuracy of the fact find data and the accuracy of income and spending is really what it’s all about, rather than guess-finding. And of course, that’s going to improve the quality of advice that you can give. Anecdotally I liked your question about underestimating spending. I probably do the same as well particularly on wine and shoes, such a typical female. I do apologize, but I’m fairly stereotypical in that I’m sure.

But quite a long time ago I spoke to one of our advisers, and he was saying he kind of gets– because people said to me in the early days when we were doing screen scraping before open banking came along, “high net worth individuals aren’t interested in their spending. They’re not interested in it. They don’t need to see their bank accounts or their transactions”. And actually it’s absolutely not true because it does give them over complex finances, for a start, and they tend to apparently react in two ways. One is they get their spending and this beautiful pie chart comes up and shows them what they’re spending on a month by month basis and they go, “yikes. I had no idea”, which is perhaps Nick’s experience or what I was spending or they kind of get a little bit, “Oh, look at me, look how much money I’m spending on restaurants and dining”. And, you know, this is a little bit of a badge of honor because I can see.

So you do get different reactions from consumers anecdotally that use it. But certainly speed as well– to add three, four, five different open banking accounts onto a client portal is minutes, literally minutes, whereas to go through a lengthy income and expenditure form and fill in and try and work out and grab the bank statements and all that paperwork that’s piled up on the sideboard to find out where it is, or logging into different online bank accounts to find the data is far more time consuming. And that of course is a better expense to the client, which is which ultimately is what is driving this, is that we are giving a better experience.

Covid has increased the adoption rate to 25%, whereas we only projected for 15%. Reducing customer onboarding time also helps to increase the amount of time that the firm is making money off of that customer.
Ross Laurie:

So again, I said this right at the start. We’ve got examples of an adviser going from starting in the back office to send in a request to the customer, to getting that data back into their back office, fully categorized in five minutes. Now the customer was expecting it. But then you expect to have a phone call with your customer first. So what that gave them was a whole bunch of insights straight off the bat, and they could get onto advising the customer.

In this case, I mentioned it before he spotted the critical insurance cover that actually he didn’t know about that. He knew the guy had insurance for that company didn’t know it was critical illness and was able to change that because it was the wrong time of life. So instantly he’s done something to affect that client. In terms of adoptions, we hoped 15%. Covid’s probably pushing that to 25%. We have had one adviser say, “I like this process, I might charge for manual”. So we never know how that will go. And then lastly, we’ve talked about expenditure, we’re really interested in income as well. We’ve got 27 different income streams and the shocker for us when we started testing, this was that everyone thinks, well, “I thought I had one salary, but it turns out I had four because I had some refunds coming back that I’d not known about, or I hadn’t considered our transfers in from other accounts, and I had some dividends actually that came in.

For high net worth, we’ve spoken to some of the high net worth advice companies. And they’ve looked at it both from the point of view of, “well, I can leave this open and then suddenly get a bonus in, I can get in contact with them and manage that on their behalf before they spend it all. And also purely from a business point of view, they looked at that onboarding process of taking three months, they made, say, 10 grand a year over a customer. If they can reduce that to one day, then that’s an extra two and a half grand that year they could be bringing in. That’s an extreme case, but it’s all about efficiency, time, and the customer experience, obviously, as well. You’re not asking them to do your job for you, you’re just giving them insight straight off the bat.

Jo French:

Do we have any insight based on ‘better’ security as a result of open banking adoption? Would it be linked to faster awareness from clients do the panel think?

The 2FA from the bank is compounded by the 2FA of the client portal, so the security level is increasing compared to screen-scraping—and of course the client can revoke their permissions at any time.
Nick Eatock:

I certainly think the awareness is there without any shadow of a doubt and if you’re going through open banking to provide the approval in the first place, as Tessa outlined, you’re probably using the 2FA solution that you’ve got in place there with whoever your bank is. If that’s compounded by using 2FA within your client portal, then that kind of doubles up on that. It doesn’t become 4FA but it’s a good solution, nonetheless.

So you can certainly see the level of increase of accounts that we’re seeing with open banking compared with what we experienced a few years ago, when we introduced the screen scraping capability, partnering with Yodlee being an order of magnitude higher. I suspect that clients are understanding the better security capability within this, plus they can revoke it at any time by going straight to the bank.

I never used screen-scraping because I never felt that it was secure. In open banking you’re not introducing a third party that’s just taking data. With COVID, suddenly companies are eager to get rid of the manual processes that they’ve been holding onto.
Ross Laurie:

Personally I was never a fan of screen scraping, I didn’t use it myself for the reason it just didn’t feel secure. And I suppose one of the thrusts behind open banking and open finance in general is about that customer data portability. And if you do it through the correct channels, then you’ve certainly mitigated risk. It should be more secure by the processes we follow because you’re not introducing a third party that’s just taking data.

So I think it’s definitely faster adoption– well, I think it will be faster adoption. We’ve certainly seen initial responses to discussing the product being “well, we’ve already got a manual process in place for that, and what will compliance do” then COVID has happened and then all of a sudden we need to actually make these changes happen because it’s not just good for the business, it’s good for our customer, it’s good for the security and all the things that you’ve just asked. I mean the short answer is yes, it does improve it.

Security is also better due to all the regulation and laws around it. Most of the time when we’re accessing online banking, we’re only checking balances and transactions—not moving money around.
Tessa Lee:

I’d agree with all that. It is better from a security perspective, not least that we’re all regulated and we are party to technical and security standards. We have to be scrutinized on that. So that’s a good thing that helps with client awareness and their perception and their acceptance of it, of course, because it’s also led by law and regulation.

And also the other thing– and this is a very old stat, I don’t know how accurate this is today, but I suspect it’s not far off– 75% of the time when we’re logging on to online banking, we’re doing it to check balances and check transactions. We’re not doing it to move money. AISP services like Nick’s and like moneyinfo of course read only in terms of account information.

So it gives them access to that data on a read only basis you can’t get in there and move money. That again helps from a security perspective. So I think there are lots of benefits around that, Jo.