Legacy systems highlight the need to integrate new tech through open banking

Legacy system issues highlight the real need of integrating new services and tech solutions, according to Legal & General’s head of distribution strategy, personal investing Janine Menasakanian.

Legal & General has around 9.5 million customers as a group; however, as its personal investment division is relatively new, it is only a smaller segment. The majority of its current customers, in the investing division, are around the 50+ age-range, and are fairly financially sophisticated and still happy to utilise technology.

Naturally, the firm is looking to acquire a younger group of customers to build up its pipeline, and see partnerships with WealthTechs as the answer.

Menasakanian said, “What we want to do from a partnership perspective is be where our clients are. It’ll be different for each off those segments, but we’re seeking out partners who are aligned with some of our existing customer-base but those we’re also looking to going out and seek. We will partner with them to either help enhance their offering or for them to come into our marketspace and offer their products to enhance our offering.”

In order to penetrate the market, Legal & General is looking to use technology to increase the interaction points with customers. The company is tracking every item at the beginning of consumers financial lifecycle, monitoring where they start their journey, how do they educate themselves financially, where do they bank, what are their preferences, in what manner do they want to view their financial status. By doing this, it hopes to boost its brand to new customers and as early as possible.

However, one of the issues with existing legacy system in place at financial institutions highlight the real need of integrating new services and WealthTech solutions. In a catch 22, the systems themselves make it hard to adopt these solutions they need, according to Menasakanian.

“The primary benefit is it will allow consumers to permission their data to be available on a needs basis. This will give them an aggregated view of their financial status and what they choose to do with that is up to them. If you take it further, then you’ve got the capabilities to look at that data to switch and redirect. So, it may be easier for organisations to say to them, currently you’re saving in a deposit account which gives you 0.5% interest rate but there are other accounts which could give you more preferential interest rates.”

They are slowly improving systems and integrating new solutions through open banking. One of the biggest benefits its bringing with it is the greater access to data.

In January this year, the Revised Payment Services Directive (PSD2) bought with it a number of opportunities for the financial sector, including opening bank. As a result, financial institutions are now required to share consumer information with third parties, when they are directed to do so.

The primary purpose of the regulation was to increase efficiency and transparency in the payments industry, with open banking helping financial institutions open up and partner within the ecosystem.

The initiative is encouraging established financial institutions to partner with FinTechs and WealthTechs, providing them with new solutions and technology which their clients now demand. One of the biggest benefits its bringing with it is the greater access to data.

Open banking does have the potential to increase competition as there is huge apathy, Menasakanian said. Previously it was quite difficult to switch bank account and so people stayed put, but as the space evolves it becomes easier and easier. People can gain a better view of their finances and better alternatives, which will lead to “companies being more aware they can’t rest on the laurels.”

However, trust is a major barrier point for financial institutions, especially in the investing division, and open banking is just adding to the pile. With data being more widely shared, it is going to cause more concern from consumers about what institutions know about them and the sheer scale of it.

In addition, cyberattacks have become much more prominent and wide spread, making people very sensitive to what potential risks there are. This is magnified when it involves financial data and there needs to be a good level of trust between the customer and institution.

Not just this, but while some consumers are happy to give information to some companies, they might not be as happy for other enterprises to know, potentially sensitive information about them.

“In the next five years, we will just start to see the benefits [of open banking]. I don’t think it is quite going to happen quite as quickly as people say it will. I think the technology is there, the adoption isn’t. But also, there is a fair amount we need to do to ensure individuals trust this. People worry about where their data is going to end up, they worry about cyberattacks and they worry they are going to make themselves more prone to it.”

Having a recognised brand like Legal & General helps to ease the trust issues, as consumers are aware of them and their reputation. For them, it’s more about just making things clear for consumers and ensuring that everything is transparent.

Menasakanian believes that it is imperative the group is upfront with consumers on what they will use the data for. For example, when signing the terms & conditions, consumers need to know what everything is and how it impacts them, if not, when something impacts them later, it could be detrimental to the trust in the brand.

By being more up-front with consumers and letting them know where their data is being used, but individuals need to give permission for their data to be more widely used and passed around. This is going to help accelerate the space.

Enjoyed the story? 

Subscribe to our weekly RegTech newsletter and get the latest industry news & research

Copyright © 2018 RegTech Analyst


The following investor(s) were tagged in this article.