Investment Apps Tap Open Banking to Help Consumers Cut Costs, Maximize Returns

Traditional wealth management services often involve face-to-face interactions with financial advisors, extensive paperwork and opaque fee structures, making the process daunting for many potential investors.

However, the digital age has brought about significant shifts in consumer expectations and demands, prompting the industry to adapt and innovate to remain relevant.

Enter open banking — a concept that has emerged from the digital transformation of the financial industry, initially launched in the United Kingdom and Europe, and now gaining traction in the United States.

As finance industry players like GoCardless have noted, open banking holds immense potential to reshape the investment and wealth management landscapes by transforming how financial data is accessed, shared and utilized by wealth managers.

And by leveraging open banking APIs, third-party financial service providers can securely access a vast array of financial information from multiple banks and institutions, with user consent. This accessibility offers an opportunity to enhance services within the wealth management sector, ushering in a new era of transparency, efficiency and personalized solutions for investors across all demographics.

The recent partnership between open banking provider Neonomics and investment platform Endavu to scale the latter’s app via open banking exemplifies this trend.

In a Thursday (April 4) press release, Neonomics founder and CEO Christoffer Andvig highlighted the growing influx of individuals entering the investment landscape and the corresponding increase in consumer awareness regarding associated costs. Against this backdrop, he emphasized the potential of open banking to introduce “more cost-efficient ways to move money,” thereby reshaping the industry ecosystem.

Martin Roland Knudsen, CEO of Endavu, said the goal of maximizing user funds directly contributed to growing assets, rather than being burdened by high processing or hidden fees commonly found in the investment world: “That’s also why we partnered with Neonomics, to enable a seamless funding experience for our users as well as a cost-efficient set-up.”

Companies like open banking API infrastructure firm Yapily are also helping to accelerate the open banking trend in the investment landscape, enabling businesses to securely access financial data and insights to deliver tailored investment recommendations and strategies to customers.

Meanwhile, as Canada prepares to introduce open banking legislation, the wealth management industry anticipates significant transformations.

With real-time access to client external accounts, financial advisors stand to streamline processes currently reliant on manual inputs. Additionally, wealth managers anticipate substantial gains as they develop digital propositions incentivizing consumers to share data, Hwan Kim, a partner at Deloitte Canada, said in a report by Investment Executive.

However, despite its promise, the widespread adoption of open banking across sectors, including investment and wealth management, is not without its challenges.

Interoperability issues and varying API standards across regions and institutions can impede seamless integration and collaboration within the open banking ecosystem.

GoCardless raised the standardization issue in a May 2023 blog post, noting that the absence of established protocols for sharing financial data “can lead to inconsistencies in the quality and format of data, making it difficult for third-party providers to [analyze] and use the data effectively.”

Nonetheless, industry experts like Shadi Saifan, vice president of engineering at NCR Voyix, remain optimistic, anticipating broader open banking acceptance and standardization as time progresses.

“We’re doing it in a way that’s organic,” Saifan told PYMNTS in a recent interview discussing the future of open banking in the U.S., adding that further momentum will be generated as standards converge around open banking APIs.