How wealthtech uses open banking


| Article by: Laura AasheimProfile Image Laura Aasheim 3 min

Wealthtech has become increasingly popular over the last few years. Due to changes in customer expectations, regulatory requirements and competition from fintechs, the wealth management is working hard to keep up. Wealth managers increasingly are moving towards technology to enhance solutions that already exist (Jones, 2019).
 

Wealthtech is changing

Artificial intelligence has changed wealth management in the form of robo-advisory. Robo-advisory uses algorithms and machine learning to offer investment advice and provide management services to users. Not only can it find investment opportunities, but it also evaluates them against factors such as the user's income and goals (Cheng, 2019). Research suggests that robo-advisors will manage around $4.6 trillion by 2022 (Meola, 2021).

Micro-investing is another big change in the wealth management industry. This type of investing is done using small amounts of money on a regular basis without paying a commission (Steigrad, 2021). Micro-investing makes investing more accessible and allows for savings to be generated over years (Cheng, 2019).

Open banking allows even more customer data to be available to third parties, which increases competition and encourages customer-centric service.This data also allows wealth management to improve their organisational processes and decision making (Wood, 2020).
 

What is open banking?

Open banking is a banking practice that securely shares financial information, such as consumer banking transactions and other financial data, to third-party financial service providers (Estevez, 2020). Sharing data is done through the use of application programming interfaces (APIs) and only with the consent of customers (The Balance, 2020). Open banking is the driver behind both innovation and competition in the financial industry (Cahill, n.d.).
 

Why does wealthtech use open banking?

Wealthtech is using open banking to reduce friction for its users and improve their user experience.

Open banking allows for the  easy onboarding of investors  by removing ineficies, such as the need to manually upload documents. It allows third parties to directly access financial data and perform instant credit checks (Bayat, 2020). Furthermore, open banking offers a secure way for customers to transfer funds to and from their bank accounts. Additionally, open banking enables wealth managers to deliver personalised investment advice by giving access to an investor's financial data (Bayat, 2020).
 

Some Wealthtech Companies You Should Know About

Plum is a smart money management app that automates savings, optimises spending and provides access to investmenting. The app uses open banking to connect to a user's bank account. Plum’s AI technology uses the data to calculate a personalised amount for savings and investments as well as find the best offers for the user (Plum Use Case, n.d.).

Wealth Wizards is an online independent financial adviser that offers digital regulated financial advice and guidance. Wealth Wizards works with advice firms to create a hybrid advice model that is part human adviser and part automation. The company uses open banking to provide their chatbot with data and help users to improve their financial situations (Wealth Wizards Use Case, n.d.).

Lendlord is a free online platform for landlords that helps them manage, track and optimise their portfolio performance. Open banking allows landlords to get better insights into their investment because it will improve the quality and credibility of the data they assess (LendlordUse Case, n.d.).
 

What’s to come?

Cloud technologies and infrastructure models, such as Software-as-a-Service (SaaS), are integral to the success of wealthtech (Boniface, 2021). Leveraging this technology will create robust solutions and allow efficient and effective implementation of new technologies (Boniface, 2021).

Quantum computing is thought to be a future trend of wealth management and will be used to overcome financial research challenges. Quantum computing uses algorithms and systems to solve complicated mathematical problems. Research finds that quantum computing has the potential to help wealth management companies solve complex future issues (Cag, n.d.).

Wealthtech players will continue to adapt to industrial and societal changes, grow their market share and capitalise on their strengths and technological foundation. It’s possible that in the future wealthtech may eventually replace financial advisors (Boniface, 2021).
 

References

The Balance. (2020, October 11). What Open Banking Is and How It Will Affect You.
https://www.thebalance.com/what-is-open-banking-and-how-will-it-affect-you-4173727

Boniface, A. (2021, May 10). Benefits of a modern tech stack in the wealth management industry. Finextra.
https://www.finextra.com/blogposting/20283/benefits-of-a-modern-tech-stack-in-the-wealth-management-industry

Bayat, Y. (2020, September 10). The wealthtech customer journey: reimagined. Truelayer.
https://truelayer.com/blog/open-banking-wealthtech

Cag, D. (n.d.). The Future of Wealth Technology (WealthTech). Richtopia.
https://richtopia.com/emerging-technologies/future-wealth-technology-wealthtech/

Cahill, H. (n.d.). InvoiceFair. The Evolution of Open Banking: Connectivity breeds digital competition.
https://invoicefair.com/the-evolution-of-open-banking-connectivity-breeds-digital-competition-081118/

Cheng, M. (2019, Febuary 19). The Future of Wealthtech. Forbes.
https://www.forbes.com/sites/margueritacheng/2019/02/19/the-future-of-wealthtech/?sh=197cbb0a35e6

Estevez, E. (2020, August 27). Open Banking. Investopedia.
https://www.investopedia.com/terms/o/open-banking.asp

Jones, A. (2019, July 9). Wealthtech: A Game Changer for Wealth Management. International Banker.
https://internationalbanker.com/brokerage/wealthtech-a-game-changer-for-wealth-management/

Lendlord use case. (n.d.). https://openbankingusecases.com/apps/lendlord-io.
https://openbankingusecases.com/apps/lendlord-io

Meola, A. (2021, April 6). Top robo advisors in 2021: Performance reviews, returns, and comparisons. Insider.
https://www.businessinsider.com/best-robo-advisors?r=US&IR=T

Plum use case. (n.d.). Open banking use cases.
https://openbankingusecases.com/apps/withplum-wealth-management

Steigrad, L. (2021, Febuary 9). What is micro-investing? Spaceship.
https://www.spaceship.com.au/learn/what-is-micro-investing/

Wealth Wizards use case. (n.d.). Open banking use cases.
https://openbankingusecases.com/apps/wealthwizards

Welling, D. (2020, December 26). How Fintech Is Disrupting Wealth Management. Investopedia.
https://www.investopedia.com/tech/how-fintech-disrupting-wealth-management/

Wood, M. (2020, March 16). How Can Asset and Wealth Managers Take Advantage of Open Banking? BCS Consulting.
https://www.bcsconsulting.com/blog/how-can-asset-and-wealth-managers-take-advantage-of-open-banking/

Recommended articles