CPD: Open Banking – increase client personalisation and your profitability

Open banking is not just a trend; it is the future of financial services.

The rise of Open Banking in the financial services industry

The global rise of open banking has been driven by technological advancements and changing consumer expectations. Innovations in artificial intelligence (AI) and machine learning (ML) have further accelerated its adoption, enabling financial institutions to offer more interconnected and value-driven services.

Countries around the world are adopting open banking practices at different paces, with regions like Europe and Australia leading the way. In the UK, the implementation of the Open Banking Standard has already transformed the financial landscape.

In Australia, the introduction of the Consumer Data Right (CDR) has set the stage for open banking, with financial institutions and third-party providers now able to actively participate in this new data-sharing ecosystem.

As these practices become more widespread, they are expected to drive significant innovation in the financial services sector, offering new opportunities for both consumers and financial advice businesses.

This article explores the concept of open banking, and how it can be leveraged to drive margin relief, customer growth and better compliance, all while continuing to drive the highest possible client satisfaction.

What is Open Banking?

Open banking refers to the practice of enabling third-party providers to access consumer banking, transactions, and other financial data through the use of application programming interfaces (APIs). This model is part of the broader Consumer Data Right (CDR), aimed at promoting financial transparency, fostering innovation, and enhancing customer experiences across the economy.

In essence, open banking breaks down the traditional silos within the financial industry, allowing a more interconnected and transparent financial ecosystem. By facilitating secure data exchange among various financial institutions and third-party providers, open banking paves the way for advice businesses to unlock greater efficiencies and growth.

What is the Consumer Data Right (CDR)?

The CDR is the legislative element of open banking in Australia, it sets the rules and framework for greater financial transparency and innovation.

How Open Banking works under the Consumer Data Right

The mechanics of open banking revolve around a carefully orchestrated process designed to reshape the relationship between financial institutions, consumers, and third parties:

1. Consumer Consent: Open banking begins with obtaining explicit consent from consumers for data access through third-party applications. This consent is flexible, allowing consumers to revoke access if their circumstances or preferences change.
2. Identity Verification: Consumers play an active role in ensuring the security of their data by verifying their identity before sharing information with third parties, adding an additional layer of protection.
3. Data Sharing Confirmation: Before any data is shared, financial institutions confirm the details with the consumer, including what data will be shared, the purpose of the sharing, and the duration of access.
4. Data Transfer and Usage: Once consent is obtained and confirmed, the consumer’s data is securely transferred to third-party providers via APIs for processing.

Open Banking unlocking new and enhanced capabilities

1. A single view is just the beginning

A key challenge that we frequently observe in the market is advisers jumping in and out of different programs in order to show their clients a full picture of their wealth. It’s a clunky process. Logging in and out of multiple software platforms loses momentum; not only does it hinder you and your team from completing the work efficiently, but it’s also disruptive for your client experience.

Solutions that provide a single view of a client’s financial universe relative to their financial ambitions is where significant value can be generated. However, a single view is just the start of an even greater value proposition that can be unlocked.

2. Make Fact Find seamless

If you’ve ever gone for a morning run and found the first kilometre tough, you know how daunting the rest of the run can seem. The same feeling can apply to onboarding processes. Traditionally, Fact Finding has involved a tedious mix of manual data gathering and digital scraping methods. This approach carries the risk of data being out of sync or, even worse, incomplete.

By leveraging Open Banking and advanced technologies like AI and ML, you can revolutionise your onboarding process. These platforms allow for the aggregation of your client’s data, enabling you to thoughtfully design an end-to-end onboarding journey that is both seamless and efficient.

Instead of overwhelming clients with endless form fields, consider implementing intuitive digital Fact Find modules. These modules can be broken down into easy-to-navigate sections, aligned with the common areas where clients typically access the required data. This structured approach not only simplifies the information-gathering process but also enhances the overall client experience, making onboarding less of a chore and more of a streamlined, user-friendly interaction.

3. Make proactivity sustainable

As an adviser, much like in most service industries, you constantly face a familiar challenge: balancing a client’s desire for proactive engagement with your need to maintain scalability.

This is where we believe the role of technology in our lives has, at times, veered off course. When email became the preferred method of contact, the intention was to streamline communication and free up time for other value-creating activities. Unfortunately, it seems recently we’ve become more enslaved by this technology than empowered by it.

To truly harness technology for efficiency, it’s crucial to focus on automation that delivers value to multiple clients or use cases simultaneously, rather than just catering to individual situations. While it’s essential to tailor technology to meet specific client needs, these solutions can often be applied more broadly, offering additional value to others.

For example, setting up triggered alerts to highlight shifts in client spending relative to their budget allows you to efficiently demonstrate a high level of engagement and oversight. Beyond just managing cash flow, integrating key planning tools can facilitate similar, seamless proactive measures, like identifying optimal moments to implement the next phase of a client’s strategy. This approach not only enhances your ability to scale but also ensures that clients receive the proactive attention they expect.

4. Continually increase in value

Another common challenge in service industries is ensuring that the value you create continues to grow over time. Whether in financial advisory, operations or even marketing, many engagements begin with a strategy and planning phase. This is often when the greatest value is generated, but maintaining that value can be challenging.

Several factors can contribute to this difficulty, like complexities in rolling out the plan, or other unforeseen obstacles that hinder the progress. As a result, the initial clarity and direction established during the strategy phase can become muddled and diluted over time.

This is where single-view technology can be a game-changer. By providing a consolidated overview, it allows you to quickly and proactively identify when a plan is deviating from its course. With this insight, you can diagnose issues early and make necessary adjustments, ensuring that the value you established at the beginning of the engagement not only remains intact but continues to grow throughout the entire process.

5. Access to historical data to predict future events

Real-time data becomes even more valuable when it’s analysed alongside historical data. This combination allows you to anticipate changes in spending patterns, enabling you to help clients recognise recurring habits or significant events, and plan accordingly for their financial future.

However, this kind of insight doesn’t always need to be delivered on a one-to-one basis. With the right technology platform, you can automate the process of sharing this information. This could take the form of alerts, automatic analyses, or detailed reports, making it easier to keep clients informed without requiring constant manual input. You can also leverage one-to-many channels, like webinars, to discuss common barriers to achieving financial goals. These sessions not only educate but also offer best practices to help clients avoid pitfalls.

Staying connected and understanding day-to-day and month-to-month financial experiences is crucial. Just as we expect politicians to stay “in tune” with the concerns of the public, maintaining a deep understanding of what your clients face helps you stay relevant and valuable in their lives. This proactive engagement not only strengthens client relationships but also reinforces your role as a trusted advisor who is always ahead of the curve.

6. Data security and compliance

Open Banking, integrated with a client single view platform, offers powerful capabilities for synchronising and pre-populating data through connections with compliance tools like Xplan, Midwinter, and other third-party systems. These regulated integrations ensure that data flows seamlessly and securely between platforms, enhancing your ability to meet regulatory standards and reducing the time spent on manual data entry and audits.

By automating the compliance checks, these systems instantly verify adherence to regulations, minimizing the risk of non-compliance and the associated penalties. This automation also improves data accuracy, as it significantly reduces the errors that can occur with manual data entry.

Regulated connections ensure that data is transmitted securely, in line with industry standards like GDPR or the Australian Privacy Principles. This protects against data breaches while also demonstrating a commitment to safeguarding client information, which is key to maintaining trust and confidence.

7. Expanding client base and scaling operations

With a real-time view and seamless cash flow management for your clients, a significant portion of your service offering becomes automated. This automation creates substantial opportunities to expand your client portfolio.

You’ll gain additional capacity to take on more clients without compromising service quality. The accuracy and efficiency of an automated service model also give you greater confidence in presenting your offerings to potential clients. This then enhances your ability to propose an engaging and responsive service model, ultimately increasing your conversion rate for new clients.

8. Broadening value

The responsibility of liberating a client’s financial data, should not be placed solely on the adviser. It is a shared responsibility between the client and the adviser to achieve mutually beneficial outcomes. With a clearer picture of their financial universe, a responsibility sits with the client to stick to budget, cash flow and surplus strategies, enabling advisers to more effectively advance their financial position.

Equipped with tools and efficiencies that support an outcome-focused approach, financial advisers can further differentiate themselves by building strategic partnerships with a trusted network of professionals from related fields.

Collaborating with tax accountants, lawyers, mortgage brokers, or insurance specialists allows advisers to provide comprehensive solutions that address clients’ multifaceted financial needs. These partnerships not only enhance the adviser’s expertise and resources but also offer clients access to a wider range of services, ensuring holistic financial management.

Challenges and considerations

The regulatory environment is driving a fundamental shift in the landscape of financial advice in Australia. Previously, the Financial Adviser Standards and Ethics Authority (FASEA) and Future of Financial Advice (FOFA) was responsible for setting the standard for financial advisers, which has since been absorbed by the Australian Securities and Investment Committee (ASIC). Their role is to review every movement that advisers make, and streamline the process that has historically been complicated to navigate.

Additionally, the recent Quality of Advice Review (QAR) have urged advisers to broaden their offerings, moving beyond traditional services to deliver a more comprehensive range of advice-based solutions. This regulatory push, coupled with rising client demands, has created both challenges and opportunities for financial advisers to redefine their value propositions.

While open banking offers numerous opportunities, it also presents challenges that require careful management. With multiple entities accessing sensitive financial information, the risk of data breaches and unauthorised access increases, necessitating stringent security measures.

• Technology Upgrades: Advisers may need to upgrade their technology infrastructure to support open banking, including the integration of APIs and data analytics tools.
• Advanced Security Protocols: Implementing top-tier security technologies, such as end-to-end encryption, multi-factor authentication (MFA), and real-time threat monitoring across all data-handling processes ensures APIs are secured with industry-standard encryption and access to sensitive data is restricted to authorised personnel only.
• Employee Training: Comprehensive training programs should be implemented to ensure that all staff members are proficient in using open banking tools and adhering to security protocols.
• Regular Security Audits: Conducting regular security audits and vulnerability tests is crucial to identify and address weaknesses and should extend to third-party providers to ensure they adhere to the same high-security standards.
• Client Education and Transparency: Building client trust involves educating them about the security measures in place, explaining how their data is protected, and providing tools to manage their data-sharing preferences. Clients should know how to set permissions, revoke access, and understand the implications of their data-sharing choices.

The future of financial advice in the Open Banking Era

The rise of open banking marks a pivotal moment in the evolution of financial advice and for forward-thinking advisers the ability to enhance their service offering while driving greater efficiencies, creating a platform for significant growth.

As open banking continues to evolve, the opportunities for financial advisers will only grow. The integration of emerging technologies, such as AI and ML, will create new possibilities for innovation and differentiation.

Open banking is not just a trend; it is the future of financial services. The time to embrace this future is now. By leveraging the opportunities presented by open banking, advisers can not only enhance their services but also create a lasting competitive advantage that sets them apart in a rapidly changing market.

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Notes:
[1] Australian FinTech
[2] https://www.cdr.gov.au/about
[3] https://www.moneysoft.com.au/
[4] Ibid.