Already partnering with Aon, Mercer, SEI, LEBC and Nationwide, Moneyhub’s open finance platform is also in talks with several household name pension providers about bringing its data aggregation, analytics and tools to millions of savers. Four years after joining the firm, CEO Sam Seaton believes the industry is on the cusp of massive changes for the better – in no small part thanks to the power of Big Data and artificial intelligence.
Big Data and AI can sometimes seem like terms that are thrown around by techies for the sake of it, when the actual benefits these techniques can bring often seem remote or intangible.
But Seaton points to a number of real- world applications in the world of pensions and wealth management that can lead to genuinely better outcomes, potentially sweeping away outdated practices, while at the same time presenting thorny dilemmas for providers.
Take attitude to risk profiling. Seaton argues that Big Data and artificial intelligence can do a far better job of assessing risk than the current techniques that involve getting customers to fill in psychologically- structured questionnaires.
“Risk profiling through Big Data would be way more accurate than the stupid risk profiling tools that are used today. The way it is currently done is flawed. If you think we can’t tell attitude to risk from Big Data, think again, because we can. If a Russian bot can tell how people in the US are going to vote, then we can measure consumers’ attitudes to investment risk,” she says.
Big Data has been used for some time to measure creditworthiness, but how is the information that financial organisations hold on us used to calibrated how comfortable we are with different types of investments?
“The factors are many of those that are used in other forms of underwriting – how much we spend and overspend – both committed payments and discretionary, how comfortable we are not paying our credit card at the end of the month, what job we have, whether we gamble – all of these factors can be put into an algorithm to place you at a particular point on a risk scale,” says Seaton.
Attitude to risk algorithm
The ability to do this could have big ramifications for the management of pensions, and for providers that hold the data. Such data could be used to place individuals in personalised defaults that would better meet their likely risk profile, for example. But using the information could also create TCF issues for the providers holding it, which may explain why some providers have been loath to explore this area too deeply to date.
“Some providers are sitting on a minefield. Until you start digging, you don’t know what you are going to hit. But this does give the newer organisations a potential advantage,” she says.
She adds that information on a subset of a group can give proxy information for the whole – with the potential to gain insights that go beyond what is achieved through pension scheme member surveys. “If you have anonymised data on 20,000 people, that can give you a strong view of the attitudes of 100,000 people,” says Seaton.
The value of data
So does the fact that some providers, such as bancassurers, that already hold lots of information on pension scheme members as a result of the other products they hold with that provider, have an advantage in terms of knowing their customers, or is this data that can be bought on the market, if you are prepared to pay for it?
Seaton says it’s not a question of paying for it, but that this information is now available to any organisation whose customer grants them permission to ask for it, thanks to the PSD2 legislation that facilitated the open banking revolution. By granting access to a system such as Moneyhub, the user is effectively handing over the sort of consumer information that can generate these algorithm-based risk profiles, and push all sorts of other functionality.
This can all sound very Big Brother – so how will people respond to being asked to give this sort of information?
“We have to be straight with people, but it is no different, conceptually, to going to see a financial adviser. The more you tell me, the more we can tell you. If you don’t tell me about yourself, I am not going to be able to help you. So it may be that if you aren’t prepared to share your information with me, you will have to go into the default fund. But if you are, I can put you into something more appropriate,” she says.
“The more difficult question is whether you are prepared to let your data be used to make the service or the company better. Or you might say, yes you can anonymise my data, but tell me about it. The key thing is to make sure you are transparent about it.”
EBCs shining at fintech
Of all the sectors working on fintech and open finance solutions, Seaton is vocal in her praise of employee benefits consultants.
Seaton’scompanyworkswith Aon’sWell One Money app, the Mercer Money app, SEI and LEBC. In the pensions space Moneyhub is also in negotiations with several household name providers, another EBC and a platform, as well as Aberdeen Standard, KPMG, Fidelity, Nationwide and Newbury Building Society in the broader wealth sector.
“Employee benefits consultants are being more innovative and doing more to embrace open finance than probably any other segment right now. This is partly driven by the financial wellness pace but also because they are more customer centric culturally. The challenger banks are exciting but EBCs have got distribution. A lot of fintechs with a good idea find the first tranche of customers is easy – that first couple of thousand who sign up can give you a false sense of security – but it’s going beyond that that is tough,” she says.
“With Well One Money we are helping people make the most of what they can get through the benefits platform. People are swamped with offers and discounts but they don’t know which ones to use. From Well one you can find out exactly what you could have saved over the last year and work out, from the hundreds of offers available to you, which are the top 10 that you can really do well out of. I was surprised at the savings – I thought it would be about £7 a month but it turns out the average saving is £71 a month,” she says.
Moneyhub’s work with Mercer Money focuses around personalising the way they bring information to users so that communications are more focused, while the functionality created with SEI enables the provider to show the member the impact of their spending behaviour today on their future spending power.
“It drills down to the actual expenditure, both discretionary and non-discretionary – it could be the golf course subscription, meals out at expensive restaurants – and then maps that across to what they are on course to be able to afford in retirement,” says Seaton.
The system analyses the bank and credit card statements to see the individuals spending behaviour, noting the different merchants that have been transacted with.
“It’s very clever – it can tell that if you have spent £7 in Sainsbury’s between 11 and 2pm then that is your lunch,” she says.
Harnessing obsessives
Much of the Big Data is categoried by a small but attentive percentage of users who like to ensure their records are accurate. This information, which can include the labelling of different types of merchant by product or service type, can then be mapped across to other users.
“It’s like the Waze road map app. I’ve never told Waze that there’s a big pot-hole in the road near my house, but someone else has. You get 10 per cent of people who obsess and feed back into it, but that info benefits 100 per cent of users.”
This deep knowledge of users’ spending habits can have real benefits when it comes to income drawdown, which is why Seaton is in talks with both a platform and an EBC to integrate it into their systems.
“When you set up a drawdown arrangement you might say ‘I need £1,000 a month’, but you may not need that money. You may have rental property, or DB or state pension or part-time work, or you may simply spend less than you were anticipating, as has happened during lockdown. By tracking the user’s actual expenditure the system can be set up to tell the drawdown provider to only top up the account if it has less than £1,000 in it. That means more of your money can work harder for you, for longer, and it means the provider has more AUM for longer.”
Current account equity release
A similar ‘current account mortgage’ approach is under design for equity release – allowing withdrawals to be kept to an absolute minimum, so that the interest paid can be minimised, and so withdrawals do not have to be made and left in deposit accounts earning little or no interest.
Seaton is very supportive of the pensions dashboard initiative, applauding its number one priority of creating a pension finder service to UK citizens.
“It will tell people what they have got. The next steps are what will that mean and how can we help you improve that,” she says.
But she is critical of the current practices where pension providers will not allow screen-scraping of data onto a personalised system.
“I have a personal pension with a provider, but it won’t let me aggregate my data onto the portal of my choice. That does not seem right. But by 2023 the dashboard legislation will sort that out. However, I think before then we will get some forward-looking providers breaking ranks and going open, and the pressure will be on the others to follow.”
For Seaton, commercial dashboards will be a huge change for the pensions sector. So will they take us in the same direction as Australia where every third daytime TV advert is asking you to switch your Super?
“Sadly yes, that is the future. Commercial dashboards will kick in big time. But the flip side of that is that consolidating will be important for lots of people with lots of pensions.
So what’s next down the line in terms of fintech developments for personal finances?
“It’s about automating day to day management of finances. It’s not at the expense of financial advisers or call centre staff, but to automate processes that should be straightforward. We need to move towards 24/7 financial planning – so there are rules in place for what people are trying to achieve, but their plan actually changes as their life does.”
Financial services warning
Seaton also has a warning for the financial services sector as a whole – that it does not get left behind and overtaken by the rapid pace of development elsewhere in the economy.
“We are talking to some big retail players who have such big balance sheets, who are only just opening their eyes to what they are capable of. The financial services industry has a window of opportunity to modernise – we don’t want to miss that. Walmart had 22 years to deal with Amazon and look what happened.”