Last month I looked at why switching workplace pension providers can bring real benefits by saving employers time and reducing fees to members. This month I explore what should be a third equally compelling reason for switching – providers’ approach to Open Banking. Currently, not a single mainstream workplace pension provider in the UK is currently taking advantage of this new opportunity.
While the pension dashboards project has stalled for the time being, Open Banking is pushing ahead rapidly. The leading UK banks have no option but to implement these changes to European law and the compliance of the largest nine is being directly monitored by the Competition and Markets Authority.
This represents an enormous opportunity for workplace pension providers, advisers and employee benefit consultants to provide consumers with powerful insights into the way they manage their day to day financial lives. By using Open Banking data, firms can deliver an increasing range of services to help them take better savings and budgeting decisions.
Banks do not want their customers to have this better insight, because their business model is built on people making poor budgeting decisions, so they have to waste money on expensive credit rather than saving. Many banks are now running campaigns about taking care of your data. These may look like constructive consumer messages, but they are really designed to dissuade consumers from sharing financial data with organisations who might give the customer advice that would stop them spending unnecessarily. It is frightening how much fintech is marketed on the basis it will encourage consumers to take credit they do not really need.
Open Banking has brought welcome regulation to enable consumers, not banks, to decide who they share their data with. If an organisation has the necessary Account Information Service Provider permissions from the FCA, banks cannot refuse to supply information to them if instructed to do so by a customer.
F&TRC’s recent Making Savings Affordable research identifies a wide range of techniques that have been successfully deployed elsewhere in the world to help financial consumers take better budgeting decisions. For example, warning
customers when their spending pattern might mean they will run out of cash before the month end or alternatively highlighting when they can afford to save extra money during the month which can support additional pension contributions.
While banks want consumers to run out of money before the end of the month, pension providers and financial advisers need to make sure their customers have a surplus of income at the end of each month so they can make regular savings. This makes providers of savings products and advisers far better people to trust with the overall picture of their financial life that Open Banking can facilitate.
In the US some very smart artificial intelligence tools have been deployed in conjunction with Open Banking-type services to automate the delivery of really powerful insights to individuals to encourage more positive savings behaviour. It will be hugely beneficial for consumers when similar capability is created in the UK. Unfortunately, at the moment I have not seen any UK solutions that are on a par with what is coming out of America. Hopefully this will change soon.
While the workplace pension provider community is not yet rising to this opportunity, a number of adviser firms, benefits consultants and software suppliers are. In the US such services have long been a key part of benefits packages. In the UK, it was Lorica, long since acquired by Aon, that was first to deliver such services with what is now known as Bigblue. True Potential, which has quietly built a significant niche position in the workplace market, has similar personal financial management capability embedded in its system.
For the bulk of the mainstream adviser community, the most obvious organisation to deliver this capability is Intelliflo, which has become the practice management system of choice for an increasing number of corporate advisers. I am frequently surprised at the number of firms that have put Intelliflo’s Personal Finance Portal at the heart of their individual client business but have not deployed this to their workplace proposition. While the Pension Dashboards project stalls, advisers and pensions providers should focus on how Open Banking can enhance services for members.