Open banking is a term that refers to the open access of banking services to regulated third parties via Application Programming Interfaces (APIs). Designed to increase competition and drive innovation in finance, through these APIs these Trusted Third Parties (TTPs) can initiate account-to-account bank transfers and access and exchange financial data on behalf of customers, but only with the customer’s explicit consent. The potential is huge, from reducing costs of expensive card payments for merchants to providing consumers with apps that centralise their finances and advise on how to make the most of what they’ve got.
One of the beneficiaries of the new open banking standards is wealthtech. Wealthtech, a subset of fintech, refers to a technology first approach to investment and wealth management. Whilst there has been a digital presence to the industry for a long time, wealthtech also utilises new, innovative technologies like Artificial Intelligence (AI), Big Data and open banking to provide a broader yet more accessible range of services, both for individuals and for businesses. Some example use cases include robo-advisors to provide advice on investments, trading platforms to buy and sell assets, and crypto marketplaces. Wealthtech is one of the fastest growing categories of fintech, with a huge increase in funding from $930 million in 2014 to more than $3 billion in 2018
How can Wealthtech use Open Banking
Open banking can be of great benefit to Wealthtech companies as it can reduce friction for users and provide a more personalised service, thus providing a more compelling offering. Using open banking technology, wealthtech companies’ can streamline their onboarding, and access more customer data – which can enable them to provide more tailored services to their customers.
Some of the primary uses of open banking for wealthtechs include:
- Top-ups – Usingpen banking technology to provide easy and seamless account top-ups. Paying in this way is faster and more secure than paying in using cards, providing up to 85% lower transaction fees, whilst also being much simpler than a traditional bank transfer
- KYC (Know Your Customer) – Wealthtech can benefit from Open Banking by using open APIs to gather customer information to verify their identity and establish financial feasibility. Being able to validate identity and provide basic financial information through the customer’s bank account can considerably improve the sign-up process and customer experience.
- Compliance – as banks and financial service providers must securely share data and allow payment initiation with TTPs through open APIs, wealth and investment management firms can monitor the money that comes into and leaves an investor’s investment account, and ensure that these transactions are all linked to a bank account that belongs to the investment account holder. This increases security and helps eliminate fraud.
- Withdrawals – using Open Banking technology, wealthtechs can quickly and easily ‘payout’ to users who have requested a withdrawal from their investment account.. This is possible by combining open banking verification with the fastest payment rails to ensure customers are paid to the right account immediately – no need to wait days to receive the funds.
How Open Banking can benefit the Wealthtech Industry
We have identified three key benefits that open banking can provide to the wealth and investment management sector which enable a personalised and frictionless user journey::
- Instant payment settlement – top-ups and withdrawals settles in seconds, not days
- Low fees for top-ups – save up to 85% vs card top-ups
- Reduced cost of compliance – secure end-to-end encryption and no card not present fraud
Open Banking enables secure account-to-account payments with instant settlement and easy user journeys that seamlessly integrate into any third-party applications. The open banking infrastructure helps wealthtechs quickly and instantly collect funds and process payments on behalf of their customers with bank-level security. A single API integration gives your business access to many bank connections, allowing wealthtechs to focus on streamlining the payment process while benefiting from significantly reduced fees.
Open banking offers low costs of compliance that means you can securely initiate end-to-end encrypted and fraud-free payments. It is just the beginning of what Open Banking can deliver, and its impact will help wealthtechs flourish.
Fena can help make your Wealth Management Process Easier
With the help of Fena, an open banking service provider, wealthtechs can enable seamless, low-cost, and easy account top-ups for their customers. Drop-offs can be reduced through simple and frictionless bank transfers. Customers can receive aggregated insights that can help them improve their financial behaviours and decisions when wealthtechs use fena’s open banking APIs to securely access user insight data. Compliance costs can be reduced and payouts/withdrawals are quick and easy through the combination of fena’s open banking verification process and the fastest payment rails.