Since its launch, Open Banking has been disrupting the financial services industry. Open Banking technology is a powerful way to put more financial control and power into the hands of consumers. Since its launch in 2018 new companies operating within this space have emerged, whose core business proposition and product features rely on the innovative use cases Open Banking creates. Examples include money management and budgeting apps such as Snoop and Emma. These apps use Open Banking to connect to customer bank accounts and credit cards to learn more about their customers’ financial situation and spending habits. As a result, they are able to provide customers with a clearer picture of their incoming and outgoing money, to help them budget more effectively and make better financial decisions.
Just like other financial services, Open Banking has the ability to transform the pensions industry too. However, it falls on the shoulders of companies working within the industry to utilise Open Banking technology and develop solutions that make managing pensions easier for customers. We explore a few of these ways below.
Open Banking can make it much easier for customers to fund their pensions through a new payment method called Payment Initiation Services (PIS). PIS enables users to initiate a payment transfer without leaving their pension management app.
When initiating a transfer, customers can select their bank from a list of supported providers and are then directed to their banking provider’s app to confirm the transaction.
Customers are provided with a much more convenient way of contributing to their pension by removing the need to remember or manually enter their payment details.
At PensionBee, we’ve integrated with Plaid as a partner to enable payment initiation services (PIS) which we call easy bank transfer. It’s available alongside our other payment methods but is much easier and quicker to set up. It’s also a safe and secure method of transacting financial data as authenticating and authorising the payment takes place from within the banking app.
In addition to making the way customers contribute to their pension easier, Open Banking could enable customers to automatically save into their pension.
Similar to the auto-savings or round-up features of some financial management apps, Open Banking technology could analyse a customer’s bank account and understand if they have any spare income each month that could be automatically saved into their pension.
This could be particularly beneficial to those who are self-employed, of which only 24% save into their pensions. Such a feature could therefore act in a similar way to auto-enrollment, which benefits employees who have a workplace pension.
Combining account information in one place
One of the core ideas of Open Banking is to give customers better oversight of their financial information. One way of doing this is through Account Information Services (AIS).
AIS allows customers to see their financial information consolidated into a single view. By integrating with financial services such as banking and money apps, customers are able to see their live pension balance alongside their other financial information. For example, this could be their current account balance within their banking app or their monthly spending within a budgeting app.
PensionBee has worked to integrate AIS with a number of financial service providers to provide just this functionality. For example, we’ve partnered with Starling Bank to enable their customers, who are also customers of PensionBee, to easily see the value of their pension pot at PensionBee within their app.
Consolidating old pensions
Losing track of old pensions after changing jobs could become a thing of the past as Open Banking can make consolidating pensions much easier. By connecting financial accounts, users could see their existing workplace pension within their external financial app, and initiate a transfer of that pension to their new provider should they leave that employer.
Overall, this could make the entire pension transfer process quicker for all parties, including pension providers who need access to workplace pension information such as the old provider’s name and pension policy number.
With Open Banking, there may be less need for the customer to source this information from their pension provider, enabling quicker processing times, as well as mitigating the chances for mistakes such as incorrect information being provided.
Open Banking is transforming pension management
With more than 6 million people now using Open Banking, the technology is already changing how people manage their financial lives. Some of the ways Open Banking can enable this are already available, however, there’s still room to innovate.
Here at PensionBee, we’re continuing to explore how we can use Open Banking to help our customers make better financial decisions and save for a happy retirement.
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.