Part two of my great opus on Open Finance covers the functional aspect of what it may and maybe should do in the long term savings market.  And no interminably long keyboard solos.

What data?

This is the actual product, as it were.   What information will a customer be able to easily share with a third party?  So if I look at personal pensions or workplace pensions, what more than the data in Pensions Dashboard would be required?  By the way, it’s pretty easy to port this over to investment ISAs.

The first is charges.  Open Finance is really about increasing competition and removing barriers to that.  So we may at last have a situation where customers can properly compare the price of the product.  This gets very interesting if you include fund, advice and platform charges.

Next is performance or at least underlying investment information.  As a minimum I would expect a fund code such as SEDOL, MEXID or Citi Code which will allow the receiving service to look up performance from Morning Star or another service.  This has been the practice for nearly 20 years with contract enquiry in the adviser tech sector. 

Finally I would expect demand for transaction history, i.e. the activity in the product, such as rebalances, payments in and out, etc.  This would be particularly helpful in the at retirement space.   It’s also the basic sort of thing that one gets in Open Banking. 

Find?

At its heart, Open Banking assumes you know you have a bank account.  Dashboard assumes you may have lost track of some of your pensions.

So will we have find in Open Finance?   Interesting question and a big one, as find is one of the main reasons Pensions Dashboard is such a big project. 

What needs to be understood is what the extent of lost savings products is.  We know the position in pensions but what is the position on ISAs and other savings products?  It certainly needs be considered.  For me I will wait to see evidence on the extent of lost pots outwith pensions before I take a view.

Transactions

From the outset it was clear that Pensions Dashboard was information only, whilst Open Banking allows for payments.  For me I think it is important that transactions are allowed for Open Finance to work. 

Firstly, it will allow customers to act on the back of the information they receive, which is important.  To get good customer outcomes it’s not enough to inform people they have to have the ability to take action.

Second, bringing in a unified method of initiating transactions has the potential to bring about major efficiencies across the industry.   We have standards in some parts of the industry but not everybody uses them and uniformity and compulsion would be a game changer. 

And of course we might see service levels that are the norm in banking actually arrive in long term savings.  I mean, really why should it take weeks to move money between ISAs or pensions when it takes minutes to do the same thing in banking? 

The sort of transactions I can see being offered are withdrawals from a drawdown product, initiating a transfer and making changes to the product.  The changes could go from address and other detail changes to investment choices or change of bank account.

Next post we will cover the work that the long term savings industry will need to do to deliver open finance.