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How Wealthtech uses open banking

Antonis Kazoulis
Written by

Last editedJun 20243 min read

Wealthtech companies are financial technology firms that offer their customers a range of investment and wealth management services. These companies heavily rely on customer data to provide personalized investment advice. Open banking has enabled Wealthtech companies to access customer data from multiple financial institutions, allowing them to create more comprehensive investment portfolios for their clients.

One of the biggest benefits of open banking for Wealthtech companies is that it allows them to create a more holistic view of their customer’s financial situation. By accessing data from multiple financial institutions, Wealthtech companies can better understand their client’s assets, liabilities, and cash flow. This allows them to provide more accurate and tailored investment advice unique to each client's needs and financial goals.

In addition to providing more personalized investment advice, open banking enables Wealthtech companies to offer their clients a broader range of investment products. Wealthtech companies can create diversified investment portfolios across different asset classes, geographies, and sectors. This helps to reduce risk and increase returns for their clients.

Open banking also allows Wealthtech companies to offer more competitive service pricing. By accessing data from multiple financial institutions, these companies can negotiate better pricing for investment products and pass those savings on to their clients. This can help to attract new customers and retain existing ones.

Benefits of open banking for Wealthtech companies

Increased customer engagement

With open banking, Wealthtech companies can provide their customers with a more personalized and engaging experience. By analysing the customer's financial data, they can offer tailored advice and recommendations, making it easier for customers to make informed financial decisions. This level of customization and personalization leads to higher customer satisfaction and loyalty.

Access to a broader customer base

Open banking allows Wealthtech companies to access a broader customer base than they would typically have. With the ability to access data from multiple banks and financial institutions, they can offer services to a broader range of customers. This not only increases their customer base, but also opens up opportunities to cross-sell and upsell products and services.

Improved risk assessment 

Open banking provides Wealthtech companies with a wealth of customer data, enabling them to assess risk better and detect fraudulent activities. By analysing customer data from multiple sources, they can identify suspicious transactions and behaviour patterns that may indicate fraudulent activity. This leads to better risk management and fraud prevention, benefiting the company and its customers.

Faster and more efficient processes

Open banking eliminates the need for manual data entry, making processes faster and more efficient. Wealthtech companies can access customer data in real time, reducing the time it takes to process applications and requests. This leads to quicker turnaround times, improving customer satisfaction.

Improved product development

By accessing customer data from multiple sources, Wealthtech companies can gain valuable insights into customer behaviour and preferences. This allows them to develop and launch new products and services that meet the specific needs of their target market. This innovation and agility give them a competitive edge in the market.

Use cases of open banking in Wealthtech

Automated financial planning

Open banking has enabled Wealthtech companies to create automated financial planning tools. These tools use real-time data from customer accounts to provide personalized financial advice, investment strategies, and set goals. Automated financial planning tools are beneficial to individuals with limited time in their hands who want to manage their finances and plan their financial future.

Wealth management and robo-advisory

Open Banking has given rise to robo-advisory platforms that provide algorithm-based investment advice to customers. Robo-advisory platforms use Open banking data to understand customer financial behaviour, risk appetite, and investment goals. This data is used to create a customized investment portfolio, which is then managed automatically by the platform. Wealthtech startups use Open banking to develop advanced robo-advisory platforms that provide better investment management services than traditional advisors.

Account aggregation

Open banking has allowed Wealthtech companies to aggregate customer accounts from different banks and financial institutions into a single dashboard. This gives customers a comprehensive view of their finances, making managing and analysing their financial data easier. Account aggregation services also provide customers with real-time notifications of account activities, reducing the risk of fraud and improving financial decision-making.

Payment services

Open banking has enabled Wealthtech companies to develop innovative payment services, including P2P payments, invoicing, and online checkout. Payment services that use Open Banking provide customers a secure and seamless payment experience, reducing the risk of fraud and errors. Open Banking payment services are also faster and cheaper than traditional payment methods, making them more attractive to customers.

Credit scoring and lending

Open banking has made it easier for Wealthtech companies to develop credit scoring models that use real-time data to assess a customer's creditworthiness. Open banking data provides more accurate and up-to-date information than traditional credit scoring models, making it easier for individuals and small businesses to access credit. Moreover, it is also being used to develop P2P lending platforms, which connect borrowers with investors, providing a more efficient and affordable lending process.

Implementation challenges for Wealthtech companies

The implementation of open banking comes with its own set of challenges for Wealthtech companies. In this blog section, we'll explore some of the challenges of open banking implementation for Wealthtech companies and how they can overcome them.

Data security

One of the most significant challenges of open banking implementation is data security. Wealthtech companies must ensure that they are collecting, storing, and using customer data securely. They must also comply with data protection regulations like GDPR and CCPA. To overcome this challenge, Wealthtech companies should implement robust security measures like encryption, two-factor authentication, and access controls.

Integration with legacy systems

Wealthtech companies often use legacy systems incompatible with open banking APIs. This can make integrating these systems with bank APIs challenging, leading to implementation delays. To overcome this challenge, companies can use middleware or third-party APIs to bridge the gap between legacy systems and open banking APIs.

Technical expertise

Another challenge of open banking implementation is the need for technical expertise. Wealthtech companies may lack the technical skills in-house to implement open banking APIs. To overcome this challenge, they can hire technical experts or partner with fintech companies specialising in open banking implementation.

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