It’s worse than that”¦ Jim

Anthony Rafferty, Managing Director, Origo says recent research into integration between systems in financial adviser firms’ back-office systems reveals a worrying disconnect eating into time, resource and profits of businesses

Origo recently commissioned in-depth research into the integration between systems in the back-offices of financial advice firms, and how this affected the efficiencies and profitability of those firms. 

The research was carried out independently by the lang cat, a specialist financial services consultancy based in Edinburgh, and combined hours spent in financial advice firms around the UK mapping processes and analysing how they use the systems they have in place, as well as conducting online research with another 116 financial advice firms.    

The conclusion is best summed up by Mark Polson, the MD of the lang cat, who was heavily involved in the research. He says: “We knew things weren’t great before we set out to conduct this research. But even so, we were struck by the impact of these inefficiencies on adviser back offices. Even where integrations do exist, firms aren’t trusting them or using them ”“ with good reason in some cases.”

From closely studying firms’ processes, the research estimates that in a typical financial advice business, staff could be up to 100% more efficient, dealing with twice the assets under administration they currently manage, if the systems they used were properly integrated with one another. In other words, staff could potentially be dealing with up to twice the number of fee paying clients than they are at the moment. 

That is both a shocking state of affairs and also one of opportunity ”“ not least for financial advice firms. 

To explain what we found: Firms involved in the study on average used five standalone systems in the process of giving advice, building investment and savings portfolios and managing clients; seven when platforms (transaction and administration services) were added; 10 with the addition of more general systems like accounting and office software.

It showed that due to a lack of integration between systems, and trust in those systems, firms are having to plough time and money into otherwise unnecessary manual input and reconciliation. In a typical new business journey, for example, client details were being keyed into systems at least three times!

Key facts from the research can be found on the accompanying infographic.

Currently ”“ and to be fair, despite sterling work by some of the players in the market ”“ advice firms do not benefit from a level of integration that is of real use to them. Integrations are typically point-to-point, with one provider integrating with another for specific purposes, for example for portfolio valuations. 

They are also driven by business case, with platforms, CRMs and other system providers naturally prioritising integrations that will bring in higher levels of returns. 

On a practical level and worryingly, even where integrations exist, adviser firms said that the lack of consistent and quality data meant they distrusted the output the systems are delivering, the result of which was that they had reverted to inefficient, costly and potentially risk inducing manual processes, because it was a process over which they have more control. 

Typically there are 23 point-to-point integrations required within a firm using two investment and savings platforms, without factoring in any systems for protection and mortgage services and general office systems. On a point-to-point basis, that level of integration is never going to happen.

But there is a solution. We identified that if there was a centralised hub, into which platforms, CRMs and adviser software systems and tools could integrate once and then connect to every other player in the market who was also connected to the hub, and which also dealt with making and maintaining the connections, the benefit to the industry could be huge ”“ in particular to the financial adviser firms.

Using a centralised hub would mean any provider new or established could connect with any other provider on the hub, for services pertinent to their operations, no matter the volume of business.

In this way, a centralised integration capability would significantly improve the market’s connectivity, helping advice firms to improve their efficiencies, their profitability and enabling them to deliver faster and better service to their clients, whilst potentially boosting business across the board.

Hence, for the past couple of years we have been building the Origo Integration Hub to help provide that solution. 

From a business perspective, for systems and services providers, this hub-and-spoke approach to integration does away with the need for case-by-case decisions and resource restraints incumbent of the point-to-point integration method. Linking to a hub incurs one set of integration costs instead of many, and significantly reduces resource and IT costs, which platforms and system suppliers can better apply elsewhere in their business. 

Importantly, it provides the opportunity for all software and service companies, including smaller companies and new entrants, to easily connect with new trading partners if they wish. Also, it enables adviser firms to use the software or service that best suits their business set-up.

Currently, the Integration Hub has 19 companies including some of the big names in investment and savings signed to it, with others in the pipeline. 

From a top down perspective it seems illogical that in the 21st century systems do not talk to one another in an efficient manner. However, this is a legacy issue which Origo with its remit to help improve the efficiencies and cost effectiveness of the industry and deliver better outcomes for consumers, is in a position to help resolve.

Read more about Origo here

Scotland’s fintechs can unlock the power of open banking

There are over one hundred fintech companies thriving in Scotland’s fintech community with a range of new start-ups, existing firms developing their fintech offers and tech-driven firms re-locating north of the border. The launch of open banking last year has played a key role in fuelling the growth of this sector and the UK as a whole is now recognised as a world leader in open banking innovation. 

So far, much progress in open banking has been made in the small business environment where innovative products and services are already in the marketplace such as tools for monitoring cash flow and accessing finance. An important contribution to this innovation was the first Open Up Challenge in 2017 and 2018 ”“ spearheaded by the Competition and Markets Authority (CMA) and run independently by Nesta Challenges. The Challenge was part of the CMA’s package of measures introduced to stimulate competition in the financial sector and help small businesses save time and money, find better services, reduce stress and discover the intelligence in their financial data. Winners included fast-growing fintech brands such as Swoop, Funding Options and Coconut whose products are frequently used by freelancers and small businesses across Scotland. However, as important as it is, the small business space is just the start of the open banking revolution.

When we consider the consumer market, while there are products that are already in use it’s fair to say that take-up has not yet been widespread – especially in light of research showing UK consumers stand to gain £12bn a year from open banking-enabled services^[i]. Awareness of open banking is still low, with new research from Nesta Challenges showing that 55% of people in Scotland have not heard of it. 

On the other hand, 46% of Scottish people say that they want to feel more in control of their finances and 33% want personalised information and guidance to help them manage their finances. For people in Scotland the two biggest benefits of using an open banking enabled product are seen to be: saving money and finding better deals. These findings present big opportunities for those fintech companies and start-ups in Scotland developing open banking-enabled innovations for consumers.

That’s why Nesta Challenges, in partnership with Open Banking Ltd, has launched the Open Up Challenge 2020 – a £1.5m prize fund to encourage fintech innovators to create solutions that will help people to make more of their money.     

With Open Up 2020 we want to attract breakthrough innovations designed to support hundreds of thousands of people ”“ particularly the most vulnerable. We’re looking for fintech innovators that can unlock open banking’s potential to change the way that the UK manages its money ”“ especially for the 15.2 million who regularly run out of money each month.

Open banking represents a genuinely new way of empowering people with their data ”“ it is a key milestone on the journey to a digital economy, and the Open Up Challenge has an important part to play in encouraging people to make their data work for them. Open Up 2020 will not only help people better manage their money and take control of their data, but it will also support Scotland’s growing and thriving fintech sector by fast-tracking innovative new products and services. Applications for Open Up 2020 are open until October 2^nd2019 and guidance on how to apply can be found at https://openup.challenges.org/apply/. In addition, the Open Up 2020 team will be holding office hours at Codebase, Edinburgh on Thursday 12^thSeptember ”“ book your slot hereto benefit from tailored application support from the Open Up Entrepreneur-in-Residence Sarah Tierney.

^[i]Consumer Priorities for Open Banking 2019

Income Verification: The Next Stage in Open Banking

As I’ve iterated more times than I can remember over the last two years, the implementation of Open Banking has changed the face of finance for ever.

To my eye, most financial institutions have now reached base camp’ with Open Banking, that is to say, the development of account aggregation within mobile apps. This is nice, and I’m sure consumers are enjoying having access to all their accounts in one place.

The next stage will be for banks and financial institutions to begin deriving value from its use. Within the next year I fully expect to see new services being launched by banks and FinTech’s that will allow financial institutions as well as consumers to reap the rewards from Open Banking.

To that end, we here at The ID Co. have been working with banks and lenders over the last year to bring a new proposition to market.

The ID Co.’s Income Verification solution offers banks and lenders the opportunity to capitalise on the Open Banking opportunity.

We work with numerous banks and lenders. On top of that we’ve spoken to many more over the course of the last year, both in the UK and Europe, and across the globe.

As such, I have a fairly good idea in my head of some of the challenges that are witnessed in the banking sector. One of the biggest that we’ve witnessed is the need to cut operating costs in order to stay competitive.

It’s no secret that the sector is far more crowded than it was just 10 years ago. And some of the Challenger banks now boast healthy customer acquisition, impressive UX across their apps and the web, and innovative new services.

Banks and lenders therefore have the dual pressures of bringing to market new services that will make their core offerings stickier’, while also attempting to streamline back office solutions.

It’s for this reason that I’d suggest exploring an income verification solution.

Verifying income is vitally important for banks and lenders, ensuring they have an accurate view of applicant’s financial income prior to awarding credit in order to ensure they are lending responsibly and offsetting any future risk of bad debt.

Operational Costs

Having an applicant’s income calculated within seconds of them making an application for a loan or credit totally negates the need for paper-based bank statements. The savings in time and resource here are enormous. It could take a few weeks for an applicant to submit their bank statements. And in that time, there’s plenty of opportunity for them to decide not to proceed, or to find an alternative.

We’re sympathetic to the hurdles that banks and lenders need to jump through in order to grant a loan. As well as AML and KYC checks, there are new rules on affordability to consider. For these reasons and more, it is vital that a sound lending decision is made, and not only that, be able to demonstrate why it was a sound decision.

Income verification allows you to do just that. With a solution such as ours, banks and lenders can know an applicant’s income exactly and can then calculate their monthly disposable income accordingly.

Thin Credit Files

Many of us will have friends and colleagues who are not British by birth. It feels a long time since I made the long journey from Canada to Scotland, but it is one that I remember well.

With individuals moving homes and countries with such frequency why is it that when beginning life in a new country, you also start with a blank credit file? Those with a thin credit file, perhaps because they’ve just moved into the country, can now illustrate their earnings and therefore capacity for credit through income verification.

Credit Risk

It’s a difficult challenge because most people aren’t paid monthly, or consistently. With the gig economy, students, retired, and others, those that get paid monthly are in the minority. To make a decision around credit risk, Underwriters or others need some context on which to base a lending decision. We need to understand what kind of income applicant have ”“ frequency, recency and more are all critical factors.

And this works both ways. While those with thin credit files can demonstrate why they might be right for a loan, it also gives the creditor more protection as they can protect themselves from applicants unable to practically make repayments or those that pose a bad credit risk.

Fraudulent Applications

When we were conducting research into loan applications and how Open Banking could support banks and lenders, I was struck by the volume of fraudulent activity that financial institutions needed to filter out in order to service genuine applications. Open Banking removes any opportunity for fraud as through APIs, direct access is made with an applicant’s bank account. Our Income Verification solution then looks back over many months to calculate income, not just the last one or two.

Conclusion

Income verification is the first of the services that will allow banks and lenders to derive value from Open Banking. The savings in time, cost and resource through its use are enormous and as its such reception from those who have trialled it use has been universally positive.

Reducing fraud, servicing customers with a thin credit file, widening prospect pools of potential customers, and illustrating good governance are all vitally important to lenders in 2019. We think that the introduction of our Income Verification solution will give financial institutions the answers to these questions.

Pensions Dashboards ”“ a positive step forward for the nation’s financial wellbeing

By Anthony Rafferty, MD of Edinburgh-based Fintech, Origo

Improving the overall wellbeing of citizens is becoming and ever more important focus of government, an important element of which is financial wellbeing ”“ the vision being a society where people make the most of their money and pensions through being more financially aware and equipped.

Technology has an important part to play in this, notably in respect of the implementation of the Pensions Dashboards. Primarily, dashboards are about enabling individuals to find and view all their pensions in one place, thereby increasing engagement with their long term savings and retirement planning.

Last week the DWP published its Pensions Dashboards paper, which is the Government’s response to the consultation that ended in December 2018. It sets out the practical steps necessary to implement Dashboards, starting with the establishment of an industry delivery group by the end of the summer under the new Money and Pensions Service (MPAS).

Some initial commentator reaction to the paper suggested the project wasn’t being moved on fast enough, but the paper is what we expected at this stage in the project and we see it as a positive step forward. In the paper, government clearly stated its intention to introduce Dashboards as quickly as possible’.

The four key elements necessary to make the Pensions Dashboards a reality are governance, compulsion to provide data, state pension and digital architecture. Next steps for all of these elements have been addressed in the paper, which we see as good news.

What’s more, through the consultation, government was able to test its proposals with the industry, consumer groups and other interested parties. Some 125 organisations gave feedback and the paper says the vast majority’ of them agreed with the suggested approach.

This approach includes establishing a single Pension Finder Service ”“ the core architecture that orchestrates an individual’s search for their pension data across all pensions companies and which displays their data on the dashboard they have chosen to use.

Origo has taken a leading role in the project from the start, quickly demonstrating how the technology could meet the government’s policy intent and objectives. We have built and scale-tested the central components to more than handle the 15 million and more potential requests the service could receive. Furthermore, we believe that the digital architecture can be deployed quickly to meet the stated timescales.

Through the DWP paper, government has given dashboards the green light. The task now is for the industry to help MAPS and the delivery group take the project forward to launch. It is a most exciting challenge and one that can have a significant positive effect on the wellbeing of this nation’s retirement savers.