In case we had any doubt what the answer should be, the Financial Conduct Authority asked for “proposals on how open finance could transform financial services”. There were other words for ‘how’ such as whether or if, but how was chosen.
I will go a stage further than the regulator and transform that ‘could’ to ‘will’ – open finance will transform financial services.
Open finance is defined by the FCA as “the sharing of data that provides new ways for customers and businesses to make the most of their money”. The most obvious manifestation of open finance is the proposed pensions dashboard, a concept that assumes that we will be able to find, compare and aggregate our savings, turning pension pots into a retirement plan.
The success of open banking has already inspired first-movers. Abaka, the open finance platform, recently announced a successful $6.2m (£4.7m) funding round. Other open finance ventures such as PensionBee, AgeWage and Multiply AI have similarly received substantial funding.
The key to unlocking data is the mandating of those holding data to make it available on demand in machine-readable format. This will require the adoption of data standards and the use of application programming interfaces by all who manage pension data.
Supply side takes first steps
This process of standardisation is already under way. Last year, customers of Lloyds Bank with Scottish Widows policies started seeing pensions on their bank statements.
A further manifestation is the simplified pension statement being proposed by the Department for Work and Pensions after work from Ruston Smith. The DWP’s consultation paper on how we get standardisation ties in with work on cost and charges disclosure, which itself has been greatly simplified by the FCA.
But this momentum on the supply side is in advance of, rather than because of, consumer demand. The public’s apathy towards pensions is reinforced by each pension information pack stuck in the letterbox. This doormat debris is generally returned to sender – marked “gone-away”.
While progressive providers like Phoenix aspire to universal digital contact with policyholders, most occupational pension administrators know no more of members than the members know of them. Pensions are strangers to our phones.
There is no effective pension-finding service and – in its absence – the DWP estimates that by 2050, Britain could find itself with 50m abandoned pension pots. Last year the Pensions Policy Institute calculated £20bn of pension savings had gone unclaimed. The public’s expectations from their pensions are so low that this appalling state of affairs is allowed to continue without outcry.
Open pensions gather little enthusiasmThe financial services industry knows very well the consequences of depriving its customers of information. Payment protection insurance has been to the banks what pensions mis-selling was to the insurers. Having swallowed such bitter pills, you would have thought lessons would have been learned that full upfront disclosure is a risk mitigator.
Despite this, there is little enthusiasm among pension administrators for open pensions. PensionBee’s Robin Hood Index has shown that even a customer’s letter of authority can be routinely ignored by providers who care more for internal protocols than meeting customer requests.
For many administrators, empowering consumers with data means a mailbag of complaints about data quality, and a threat to revenues when service-level agreements are breached.
But returning to my optimistic theme, I see change. The various barriers put in the way of data requests, including calls for independent financial advisers, ‘wet’ signatures, and even proof of identity will be swept away when the dashboard standards are implemented.
When they are, I suggest people will start regarding their pension pots as every bit as real as their money in the bank or under the mattress. When people take back ownership of their money, they will probably ask questions about how that money has been managed, costs and charges extracted, and whether the value has been worth the money.
Behind the FCA’s open finance agenda is an assumption that financial services will need to “come clean” and be held accountable. Whenever it happens, open finance will open a window to sunlight, and sunlight is the best disinfectant.
Thanks to Maria and Angus