Forget about robos and chatbots. These are just the froth on the crest of a much bigger wave of technology change sweeping through financial services. A brave new networked world of financial services is emerging, where pension providers will simply provide access to member data and services via standardised electronic interfaces and the end customer is more likely to use third party technology services to interact with their pension rather than go direct to the underlying provider. The proposed pension dashboard gives an inkling of the implications of this model but the dashboard is just the tip of the iceberg.
This is not simply the fantasy of emerging fintech start-ups (although of course it is that as well). It is a change championed by government and backed up by a swathe of incoming regulation. HMT in particular is keen to promote the burgeoning UK fintech industry and is the force behind both the Open Banking Working Group trying to open up access to banking services as well as the pension dashboard.
This theme is picked up in various regulations coming into force in the next year or so. The General Data Protection Regulations (GDPR) includes a section on data portability: the requirement for providers to supply customer data to third party services in a common electronic format. PSD2 will require banks to allow third parties to access account data and payment services via electronic interfaces. And the pension dashboard, whilst currently just an unenforced aspiration, is almost certain to find its way into the rule book if the project is to succeed.
The acronym ‘API’, for years the sole preserve of the humble software programmer, is suddenly taking centre stage in debates on regulation and the future of the industry. In the 80’s we used Application Programming Interfaces (API) to refer to a standard interface to provide access to computing resources. It is now used to refer to a standard interface to provide access to everything a financial services provider has to offer. But the intention is still the same: commoditise the services and allow providers to be easily switched in and out.
And that brings us to the heart of the matter. The Treasury is desperate to introduce more competition into financial services. If it’s easy for customers to move from one pension provider to another then providers are more likely to offer a product that makes customers want to stay. If the pension can be transferred to a new provider at the press of a button via standardised electronic services (the subject of another industry initiative prompted by the FCA) and the customer can still monitor their investments via the same third party service then transfers should, at least in theory, become commonplace.
So how should pension providers respond to this change?
Firstly, a change in thinking is required. It’s not your data to exploit, it’s the customer’s data held in your safekeeping for the time being. The customer will dictate what you do with the data and how they access it.
Secondly, you don’t need to compete with the fintechs. If you are in the business of providing good pensions rather than online services then a reasonable response may well be simply to build good relationships with some of the best online aggregators and robos and let them take the strain of supporting the wide variety of ways in which your customers want to engage. Pension providers need only offer the simplest of service interfaces allowing them to focus on creating the most compelling pension offerings.
So in summary: accept that change is coming; embrace the idea of working with third party services; seize the opportunity to simplify your operations; and leave the robo to the Shoreditch hipsters.