The article explores what is meant by "open finance" and how it applies to the wealth management industry.

The term “open finance” has been around for a while, and the following article explores why the wealth sector should be alert to it. According to one online definition, it is a system that lets financial service providers access and use banking information, such as customers’ transactions and account details if they give them permission. This process is carried out through special software connections. This model is attractive in that it brings new services to clients in convenient ways, but there are potential risks – cybersecurity, for example.

The article is from Raphael Bianchi, senior partner at Synpulse, a global professional services firm for banks and insurers, and the CEO of Synpulse8, the firm's financial and wealth-industry collaborative digital transformation offering. The editors are pleased to share these views; the usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com if you want to jump into the conversation. 

Open finance is a trend that many in the wealth industry have been watching for some time – but so far, only a minority have put it into practice. Expanding on the success of open banking, open finance begins with the use of open APIs to enable third-party developers to build new applications and services without facing the age-old problem of data silos. This transformative wave is reshaping the wealth landscape, elevating client expectations, and catalysing a new era of innovation. 

Building new use cases
In an open finance system, open APIs allow third parties to develop new solutions, therefore lowering the barrier for developing new use cases. Where legacy players previously held the keys to entry, now startups can make their own way into the industry. Testament to this is the more than 30 deals and $2 billion in VC funding in wealth techs over 2023, albeit the sector saw funding down as did many other verticals last year. In the past few years, this has led to an intriguing mix of competition and cooperation between big firms and new wealth techs, eroding the problem of siloed data. Where data was previously kept in different formats across multiple unconnected systems, a move towards data standardisation and integrated platforms means that systems can gain information and insights in a way which was not possible before, driving innovation across the board. 

Newcomers inject fresh ideas into the industry, driving innovation in legacy firms and responding to heightened client expectations for a digital, integrated service available through any channel at any time. A lower entry barrier also leads to the ability to try more radically different ideas, such as entirely new business models or use cases, rather than simply optimising existing ones. 

Incumbent players will be able to leverage third-party distribution channels for their products and services, with fintechs being able to provide fully digitised customer journeys and connect their solutions easily to custodian banks and other players in the finance ecosystem, or even beyond. As wealth clients demand more sophisticated services, open finance will become the catalyst for an upward spiral of innovation, positioning the wealth industry on the cutting edge of technological advancements.

Changing relationships
Industry innovation is not the only factor leading to raised client expectations. The client pool in wealth management is currently undergoing one of the biggest demographic shifts in decades. By 2045, the majority group will become the Millennial generation, with the first Gen Zs also becoming eligible for wealth services. 

Having grown up with digital services as an integral part of their lives, this segment of customers has a growing expectation that wealth services will be integrated and digital. While many wealth management firms reluctantly adopted technologies such as video meetings during the pandemic, 50 per cent still say that providing a more sophisticated digital experience is a challenge for their firm. Meanwhile, early adopters have already ushered in a wave of new digital client tools, such as features which enable clients to execute their trades and engage with their wealth managers online. The ability to offer personalised, yet technologically streamlined services is quickly becoming the hallmark of a successful wealth management provider.  

Expansion into affluent segments
Implementing digital services and using open finance bring advantages not only to clients, but also to wealth management firms who can make operations more efficient and scalable. Industry standards, supported by associations such as OpenWealth, set the stage for harmonisation and collaboration, laying the groundwork for hyper-personalisation and interoperable technologies which work together. 

Greater operational efficiency allows client managers to oversee a larger client base with increased automation, providing a personalised touch even in a more streamlined service. As such, wealth managers are able to widen their horizons in seeking new types of client. A clear route is extending their offers beyond (ultra) high net worth Individuals to the affluent segment, designing more affordable and accessible iterations of their services. 

This is a huge potential market for the industry, especially in countries across Asia where there is huge projected growth in the affluent market segment. Although fast growing, the wealth industry in these regions is often nascent and can therefore benefit greatly from the involvement of international players with robust operations and controls already in place. 

Meanwhile, technology-backed services make it scalable and profitable to deliver the ad hoc or on-demand services which affluent clients typically need, instead of the classic ongoing advice required by high net worth clients. Affluent clients are also more likely to be open to technology-led services, making partially automated advisory services not only the most cost effective but also the most popular service model for this client segment. This is a clear way in which technology can support new business cases which were not possible before, where growth was previously strictly linked to the number of clients a manager could maintain in their portfolio.  

The way forward
As open finance disrupts the traditional wealth value chain, the industry stands at the threshold of unprecedented transformation. Open APIs empower diverse players, from industry giants to startups, fostering both competition and collaboration and spawning inventive use cases. 

The ability of firms to embrace innovation, cater to evolving client expectations, and tap into new markets will be crucial to maintaining relevance and capitalising on opportunities for future growth.

Open finance positions wealth management on a trajectory of sustained growth and relevance, promising a future defined by seamless and accessible services – but only if the industry takes the first steps now to get to grasp with its fundamentals.     

About the author

Raphael Bianchi is senior partner of Synpulse Group and CEO of Synpulse8. His previous work includes the initial setup of Synpulse's footprint in Asia and the expansion into nearshore capabilities. He focuses on projects in open finance business models and finance ecosystems and is responsible for initiatives such as the OpenWealth Association.