From fear to confidence: open finance and the rise of new investors

Discover how open finance is reshaping the landscape of money management, attracting a new generation of investors.

For many individuals, investing is intimidating. They face unfamiliar language, a new and perhaps complicated process, and ultimately, they face critical choices that loom large for their future and present. It’s almost enough to want to eschew it altogether. 

Unfortunately, many potential investors do, and many of these happen to be young investors. 

Open finance, by moving the access of financial data out of the sole purview of the banks and back into customers’, will have a major impact on how money managers attract, work with and retain new investors. 

In this article, we look at new features money managers can offer, such as rounding and roundups, cashforward investments, deeper and more holistic insights, and more.

The rise of new and younger investors

Money management is facing significant changes as a massive shift in wealth continues to take place. This shift is driven by many factors, but two loom large: first, the growing importance of women investors; and second, the growing influence of younger investors and their consumer demands. 

Women investors

Women are increasingly a critical demographic of investors. As average income levels rise, despite a stubborn pay gap, women have more money to save and invest. Additionally, with the Great Wealth Transfer (whereby parents and grandparents pass their wealth down to the younger generations - by one estimate, transfering about $84 trillion over the next 20 years), women stand to inherit a great share of wealth.

However, women generally invest less than men. A 2021 Fidelity study found only 33% of women actually see themselves as investors. A US-based survey by FinanceBuzz found that about 34% of women haven’t even begun investing. While COVID has influenced many women to start investing (about 67% of women are now investing outside of their retirement accounts, compared to 44% in 2018), there still remain significant barriers. 

Young investors

Millennials and Gen Z investors are of particular interest to money managers because they have more economic power than any other generation preceding them. In general, they have higher incomes, and are more interested in saving and investing.

Moreover, Millennials and Gen Z investors have different attitudes towards investing. They are more inclined to use their capital for socially responsible investing and in particular, are focused on ESG initiatives. According to an article by Fortune, 25% of millennials who save have more than US$100,000 in savings, and 95% of them say they want to invest in socially responsible ways.

Addressing investment fears and new preferences

Research suggests that the three main barriers to investing are: 

  • Fear and anxiety,
  • Inequitable access, and
  • Insufficient funds. 

Those in the money management space, especially robo-advisors and digital banks, have been proactive about allaying younger and new investors' fears by using product features to lower these barriers. 

Wealthsimple, for example, has spent time and marketing dollars towards creating and curating information, including a Personal Finance 101 webpage, the Wealthsimple magazine, podcasts and more. Questrade, as another example, offers a number of learning resources, such as webinars and lessons

While information is great, open finance stands to open a whole new world of product features for onboarding and retention that will be immensely valuable for new investors. Actually, Questrade has taken the additional step to incorporate open finance by offering open-enrolment, card-linked rounding and cashback to help new investors get on the right track when it comes to building up savings and investments.

Understanding open finance for money managers 

Open finance refers to a system which allows for the secure and standardized sharing of financial data not only from banks (which is open banking), but also from various financial institutions, including investment firms, insurance companies, credit unions, and more. Open finance is built upon the core principles of transparency, customer control, and fostering innovation and competition in the financial sector.

The central tenet of open finance is to empower customers with greater control over their financial data. By providing explicit consent, customers can grant access to their financial information to authorized third-party financial service providers, such as money managers. This capability is key for money managers to transform their services to their clients.

To learn more about the differences between open banking and open finance, read How are Open Banking, Open Finance, Embedded Finance, and BaaS Different?

Advantages of open finance for money managers 

Open finance enables money managers to offer more comprehensive and customer-centric financial services. 

  1. Holistic financial insights: Money managers gain access to a vast array of financial data, including banking, investments, insurance policies, and other financial instruments. This holistic view allows them to make more informed decisions and devise comprehensive financial strategies for their clients.
  2. Personalized financial planning: With a broader range of financial data at their disposal, money managers can deliver highly personalized financial planning and advice. They can create customized investment portfolios and insurance plans that align with each client's unique financial situation and objectives.
  3. Streamlined transactions: Open finance APIs facilitate seamless and secure transactions across various financial platforms. Money managers can efficiently execute trades, transfers, and other financial activities, simplifying the overall management of clients' assets.
  4. Product innovations: Open finance fosters greater product development, allowing for the data and data calls to create features that make it easy for investors to save (rounding and roundups is a great example of this!).

Open finance is often referred to and spoken about as a technology around the corner, and not yet in the market. However, this is a misconception. Forward-looking money managers eager to gain a competitive advantage can and should explore the following application available today. 

Besides rounding and roundups, money managers should also explore cashforward investing, and personalized investment insights and advice, amongst others.

Where Olive comes in

As an embedded finance platform, Olive delivers open banking solutions for clients. In the money manager space, it means onboarding new investors and increasing overall deposits. Olive empowers your customers to turn every purchase they make into micro-deposits into their accounts with you.

For more information speak with an Olive specialist today.

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