Unlocking the benefits of Open Banking for Wealth Management

Unlocking the benefits of Open Banking for Wealth Management

This article appeared on the front page of the Banking CIO Outlook magazine, October 1, 2023. Click here to read the article.

Wealth management firms are embracing digital transformation to remain competitive and meet evolving customer expectations. While collaborative efforts between firms and technology providers continue, the real potential lies in scaling these ecosystems for the Canadian market. This is where Open Banking will make a difference, paving the way for an open ecosystem where players can easily access a wide range of service providers.

“Open Banking is crucial for the success of wealth management firms. It allows them to securely access financial data through application programming interfaces (APIs), enabling innovation and improving services,” said Raghid Nami, Product Leader at Croesus, Canada’s leading wealth management solutions provider.

What is Open Banking?

Fintechs have revolutionized the finance industry by incorporating state-of-the-art technology into various transactional processes across Canada. This shift involves transitioning from traditional on-premise systems to scalable cloud platforms, all while prioritizing data security and privacy through substantial investments in cybersecurity. By effectively managing operations and customer data, businesses that embrace these technological advancements are experiencing rapid expansion and appealing to a wider range of clients.

The first regulatory drive towards open banking emerged in the 2010s with the adoption of the revised Payment Services Directive (PSD 2) by the European Parliament. Open Banking and the use of APIs enable real-time collection of client information from diverse sources. By obtaining investor consent for data access, reputable technology providers can collaborate with banking institutions to enhance the efficiency and convenience of financial services. This concept of open banking extends beyond traditional banking to encompass wealth management, often referred to as Open Wealth.

Benefits of Open Banking

“Open Banking and APIs enhance investment strategies and hyper-personalized advice while improving operational efficiency. Moreover, it provides firms with a holistic view of their value chain to develop platforms, engage customers, expand services into new markets, and achieve revenue growth with increased market access,” said Nami.

Investors now require personalized and comprehensive wealth management services, making it vital for firms to look beyond individual accounts and investment returns.

The transfer of wealth from baby boomers to millennials is fueling this shift. Millennials seek financial services tailored to their needs, with enhanced experiences that grant them control over their services, flexibility in choosing providers, and the freedom to transfer their data seamlessly. These advancements provide millennials with better investment options, increased transparency in fees and performance, and access to a wide range of financial services, enabling secure investment diversification.

“To reap the benefits of Open Banking, wealth management firms must adopt the appropriate mindset,” said Nami.

Investment advisors have transitioned into relationship managers to meet these evolving client expectations. Wealth management firms are merging departments and breaking traditional barriers, creating unified platforms that assist advisors in offering comprehensive solutions. By integrating APIs and automating processes, data input is streamlined.

“This frees advisors from administrative tasks, allowing them to engage meaningfully with clients. The enhanced conversations will allow them to improve service, increase client satisfaction and loyalty, and drive the overall growth of their business,” he said.

Emergence of Open Banking in Canada

In Canada, wealth management firms are eagerly awaiting progress on the federal government’s initiatives to implement Open Banking. It is critical to explore the opportunities presented by an open banking framework to ride the financial revolution wave.

On a global level, the trend of transparency and data sharing in financial products and services is growing. Europe introduced regulations such as the Payment Services Directive (PSD 2) and the General Data Protection Regulation (GDPR) to foster consumer empowerment regarding their data. The US is developing regulations on data ownership and mobility.

“Therefore, wealth management firms must prepare for this shift as governments strive to keep pace with these changes. The benefits of embracing an ecosystem like this are numerous, allowing firms to take advantage of its potential before regulatory aspects are established,” said Nami.

An effective ecosystem relies on two crucial elements: interconnected systems through APIs and forward-thinking business models. Firms are encouraged to explore and implement these elements without hindrance, rather than waiting for regulatory requirements. By taking proactive steps, firms can establish a robust ecosystem and stay ahead of future regulations.

“This approach fosters innovation, personalization, cost-effectiveness, improved security, and compliance, creating a collaborative market that benefits investors,” he said.

How to benefit from APIs

Wealth management firms can significantly benefit from implementing an open banking system and should seize the opportunity it presents.

For instance, by facilitating the adoption of Open Banking in its WealthTech platform, Croesus is taking its offerings to the next level. Its advanced APIs empower financial firms to actively engage with open banking ecosystems and deliver comprehensive wealth management solutions to clients.

Croesus securely connects to various systems, facilitating seamless data transfer and improved functionality. It continuously updates these APIs, empowering clients to establish their internal ecosystems and integrate with external ones. This ultimately results in a superior experience for both investors and advisors.

“We emphasize building partnerships with clients to grow solutions that benefit investors and the firm. Our core objective is to develop innovative, flexible, and secure technology solutions that propel firms forward,” said Nami.


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