Open Banking for Wealth Management & Private Banking

Open Banking for Wealth Management and Private Banking

Open Banking is a concept that has been revolutionizing the financial services industry over the last few years. It enables third-party financial service providers to access customer data from banks, with the customer's consent, to offer personalized services that suit their financial needs. This concept is gaining popularity, and as such, it is becoming an essential tool in wealth management and private banking. In this article, we will explore the future of Open Banking in the wealth management and private banking industry.

Open Banking in Wealth Management and Private Banking

Wealth management and private banking are traditionally known for their high level of personalization and exclusivity. However, the rapid technological advances of the last decade have created new opportunities for financial services firms to deliver an enhanced customer experience. One of these new opportunities is Open Banking.

With Open Banking, wealth management, and private banking firms can provide clients with more personalized services and recommendations by accessing their financial data, including bank account transactions, credit card statements, and investment portfolios. This data can then be analyzed using artificial intelligence and machine learning algorithms to provide customers with customized investment advice and financial planning recommendations.

The Future of Open Banking in Wealth Management and Private Banking

The future of Open Banking in wealth management and private banking is bright, and the benefits are clear. With the use of Open Banking, wealth management, and private banking firms can offer more personalized services, which can help attract and retain clients. Here are some of the potential developments we can expect to see in the future:

1.???????????Enhanced Security and Data Privacy

One of the concerns about Open Banking is data security and privacy. Wealth management and private banking firms must ensure that their clients' data is secure and protected from cyber threats. In the future, we can expect to see the implementation of more robust security measures and technologies to ensure that clients' data remains secure and private.

2.???????????Better Collaboration with Fintechs

Collaboration with fintechs is another development that we can expect to see in the future of Open Banking in wealth management and private banking. As the fintech industry continues to grow, wealth management and private banking firms can leverage their capabilities and technologies to provide more innovative services to their clients.

3.???????????More Customized Services

With the use of Open Banking, wealth management, and private banking firms can offer more customized services, tailored to the specific needs of their clients. In the future, we can expect to see the development of more advanced algorithms and technologies that will enable wealth management and private banking firms to offer even more personalized services to their clients.

4.???????????More Focus on Financial Education

The use of Open Banking in wealth management and private banking can also lead to a greater focus on financial education. By providing clients with personalized financial planning recommendations, wealth management and private banking firms can help educate clients on financial management, investing, and saving for the future.

Open Banking Is Forging the Future of Finance

A quick search on Google Trends demonstrates just how rapidly interest in the term has skyrocketed over the past five years. However, we are currently only witnessing the beginning of a phenomenon that will revolutionize financial services

The impact of PSD2 on financial services

By mandating financial institutions share data with third-party providers (TTPs), PSD2 aimed to increase competition and innovation in the financial services sector, which has traditionally been dominated by retail banks. Initially, it seemed that TTPs had the most to gain from the new regulation, since banks were forbidden from monetising their APIs and had relinquished exclusive control over valuable consumer data. Two types of TTPs subsequently emerged: account information and payment initiation service providers (AISPs and PISPs), and the number of use cases for open banking-driven financial solutions exploded.

The most innovative developments are currently unfolding in payment initiation, which enables customers to allow third parties to initiate payments directly from their bank account via transfer schemes like Faster Payments, SEPA or Elixir Express. Removing the middleman is advantageous for customers and merchants alike; the latter pays dramatically fewer fees, while the former gain greater security against fraud because they don’t need to provide their card details (which also saves the hassle of typing them in). Given that bank transfers, today take 10 seconds, rather than 10 days as they used to, card payments no longer have the speed advantage — putting their future into question.

In the more short-term future, the greatest change we will see in open banking is the evolution to open finance, which will likely form part of PSD3. Open finance requires different types of entities (not just retail banks) to open up their data, which would give TTPs access to investment services, insurance companies, gig economy platforms, and pension providers. From a business point of view, dealing with accounts like mortgages is logistically not much different from dealing with bank accounts, so the underlying technology will have to change a little while providing considerable benefits to the consumer.

Open banking will give financial institutions a much more accurate picture of people. On social media, it’s hard to predict what people are really like because they can manipulate their image and choose what information to share. With open banking, banks have access to data that represents consumers’ real, unedited life — that’s valuable data. Combine this with the power of companies like Google and the potential will be tremendous.

In terms of trends on the Private Banking side, there are so many emerging themes in the industry; ESG, crypto, blockchain, cybersecurity, and philanthropy. The future of private banking in 2023 will be incredibly interesting to witness.

With these themes in mind, we can expect the following trends to take shape in 2023:

1. The rise of alternative asset classes - According to a recent study by the?Bank of America Private Bank, younger clients believe that traditional stocks and bonds offer less opportunity for growth than alternative assets such as private equity (including Angel and VC), private debt, specialist funds, collectibles and … crypto assets.
2. The creation of the digital private bank - A wealth manager’s most valuable asset is their relationship with the client. With the Great Wealth Transfer, new clients will not be satisfied by the traditional periodic face-to-face meetings and hefty printed reports. Instead, customers will increasingly expect a proposition that is more reliant on digital technology than most private banks are willing to provide, including access to real-time information and transactional capability. By slowing down digitalization, private banks risk accelerating the departure of their new, younger clientele.

The emergence of wealth as a service - To meet the increased expectations of this new class of client, private banks will need to provide an increasingly wide set of products and services to retain their customers. What’s more, the simplicity of digital banking, especially for young, wealthy customers, makes it very easy for them to change banks if their parents’ bank does not offer what they want.

1. New providers are offering access to new asset classes, help with ESG and philanthropic projects,?tailored professional advice and even lifestyle services. Private banks have a choice: they can accept that their clients will engage with these providers without getting involved, or they can decide that they should play a part.

According to Private Banker International

"Private banking and wealth management firms are braced for one of the biggest disruptions the sector has ever faced. This disruption is not due to a global recession, global warming, technological transformation, or the arrival of new entrants: instead, it will be driven by The Great Wealth Transfer. Experts forecast that by the end of 2045,?$84 trillion in wealth will transition?from one generation to the next. Just as a comparison, the USA’s entire GDP last year was?$23 trillion."

Conclusion

The future of Open Banking in wealth management and private banking is bright. As technology continues to evolve, we can expect to see even more innovative uses of Open Banking to provide clients with more personalized services and better financial management. However, it is essential to balance innovation with security and data privacy to ensure that clients' trust is maintained. Overall, Open Banking is a game-changer for wealth management and private banking, and it will undoubtedly shape the future of the industry.