Open finance creates new innovative and exciting ways young people can save and invest for the future. Key open finance applications such as rounding and cash-forward are great tools to nudge young people in the right direction when it comes to their personal finances.
Learn how these applications are not only simple but effective for money managers to attract young investors.
Key open finance applications to attract new investors
Creating accessibility is key to adoption for young demographics. Removing sign up friction is step one, and can be accomplished by providing for open enrollment of any credit card. No need to carry a certain card or spend in a certain way. Making it easy to harness the spending already being done, on a card a user already has, can make all the difference in removing the intimidation factor of investing.
Rounding: A micro-investment tool for novice investors
Rounding has emerged as an appealing trend among young investors, revolutionizing the way spare change is invested. The concept is simple yet effective: it involves rounding up everyday purchases to the nearest dollar or any chosen amount and investing the difference. This innovative approach enables individuals to gradually accumulate funds for investments without significantly impacting their daily expenses.
Open finance greatly simplifies the process of offering rounding, as the transaction and roundup calculations become available and clients do not have to obtain a new card.
Rounding presents a win-win situation for both money managers and investors. Firstly, it encourages regular saving and investing, fostering better financial habits among users. For money managers, the consistent inflow of small amounts can be collectively invested, allowing for diversified portfolios and efficient capital allocation.
Secondly, rounding facilitates fractional investing, making it easier for investors to diversify their holdings even with limited funds. This democratizes the investment landscape and broadens participation among a younger generation who may have previously felt excluded from traditional investment opportunities.
Furthermore, the automated nature of rounding features reduces the barrier to entry and simplifies the investment process, attracting individuals who may be intimidated by more complex investment strategies.
To learn more about rounding for financial wellness, read more here.
Cash-forward investing
Cash-forward investing represents an approach that enhances engagement and loyalty among investors, offering a unique and forward-thinking concept that goes beyond traditional cashback rewards. This strategy entices investors by allowing them to allocate a portion of their cashback rewards directly into new investments, thereby creating a path to future wealth.
Cash-forward investing introduces a novel way for investors to utilize their cashback rewards productively. Instead of receiving cashback as immediate funds or rewards, investors have the option to "cash-forward" a portion of those rewards into their investment portfolio. This means that every time investors earn cashback, they can allocate a predetermined percentage or amount directly into new investments, further fuelling the growth of their financial assets.
Cash-forward investing offers a range of benefits that appeal to investors and contribute to their financial success:
- Compounding Growth: By reinvesting cashback rewards, investors take advantage of the power of compounding. Over time, even small amounts can grow significantly, helping to boost their overall investment portfolio.
- Disciplined Investing: Cash-forwarding encourages a disciplined approach to investing. Investors become more intentional with their spending habits, knowing that they have the opportunity to enhance their financial future through the rewards they earn.
- Reinforcing Long-Term Goals: Cash-forwarding aligns with long-term financial goals. It serves as a constant reminder for investors to stay committed to their financial objectives and fosters a sense of responsibility towards their future wealth.
- Leveraging Cash-forward to Drive Engagement and Loyalty: Investment platforms can leverage cash-forward investing strategically to increase user engagement and loyalty.
Hyper-personalized investment insights
Open finance takes the concept of personalized investment recommendations to the next level by expanding data access beyond traditional banking sources. Money managers are now empowered to gather comprehensive financial data, including transaction history and spending patterns, from various financial institutions, investment firms, insurance companies, and more. This wealth of data opens up new possibilities for offering personalized investment recommendations and tailored financial advice to clients.
With customer consent, money managers can seamlessly retrieve information on bank accounts, investments, insurance policies, credit card transactions, and even real estate holdings. This comprehensive data allows money managers to gain a 360-degree view of their clients' financial situations and make well-informed decisions. By identifying patterns and trends in the data, money managers can curate personalized investment portfolios that align with each client's financial goals and aspirations.
For instance, if the data reveals a client's affinity for socially responsible investments, money managers can prioritize environmental, social, and governance (ESG) assets in the portfolio. Alternatively, for a client with a preference for long-term growth and a moderate risk tolerance, the investment recommendation may emphasize a mix of equities and fixed-income securities.
Open finance not only enables personalized investment recommendations but also facilitates tailored financial advice to optimize clients' overall financial health. By analyzing spending patterns and cash flow data, money managers can provide insights into budgeting, cash management, and debt reduction strategies. This holistic approach to financial advice ensures that clients receive guidance not only on investments but also on other aspects of their financial well-being.
The future, open finance and investing behavior
As we look ahead, it is evident that open banking is poised to revolutionize the investment management industry in ways previously unimaginable. The convergence of nudging savings features, like roundups and cash-forward, data-driven insights, personalized investment recommendations, and streamlined onboarding processes is redefining the client experience, making investing more accessible and appealing to individuals from diverse demographics.
With the transformative force of open finance, we stand on the brink of an exciting new era in investment management, where innovation and accessibility converge to shape a brighter financial future for all.
To learn more about how Olive is helping drive this transformation, visit Olive Solutions for Financial Wellness, or talk to an Olive specialist today.