API enabled ecosystems have long been technologically possible but have gained significant traction as a result of open banking and the second Payment Service Directive. Both require financial services firms to allow third-party businesses to access permitted customer data, offer personalized services and become part of the customer’s financial ecosystem.

But how can engaging with this changing landscape positively impact wealth managers and add to their service proposition? And how can service providers make sure that their offering is relevant and appealing?

In short, being a part of an ecosystem serves the wealth manager well. Martin Greweldinger, Group Chief Product Officer at Avaloq explains: “Ecosystems enable satisfying the increase in customer demand to have more sophisticated, richer but easy-to-use solutions. We see increasing demand from banks and wealth managers to support integration of third-party applications from fintechs to leverage innovation and to improve their services and products.”

Indeed, the ability to integrate easily by way of API has been a fundamental enabler. The relentless pace of innovation in response to customer and adviser demands a means to provide cohesive ecosystem technology.  APIs allow software firms and others to integrate cost-effectively in a loosely coupled manner.

This can be either the bank allowing third-party solutions to plug into its own systems or using an API to plug into the platforms of other providers or vendors. The end result is the bank being able to offer its customers a better range of products and solutions within the system landscape.

This is now a must-have. Manuel Thomet, Financial Services Lead at Publicis Sapient Switzerland, comments: “Wealth managers are being challenged from different angles and know they need to innovate to remain relevant in their business. The imperative for change is driven by the client base being more tech-savvy and expecting superior service levels across digital and traditional channels. At the same time, new competitors are entering the market able to provide great wealth management experiences at low cost. For incumbents, wealth management is a jewel-in-the-crown business and they need to defend it by enhancing a proposition already based on service and trust to meet modern-day demand.”

Selection
Selection is key. The idea is not to be able to offer all things to all people, more that relevant and tailored offerings reinforce the existing proposition. This is where the platform proposition comes in.

Avaloq, for example, has made over 150 API endpoints available but the intention is to provide choice, from a range of providers and always to complement an existing offering – as opposed to flooding the wealth manager with too many options, not all of which will be relevant.

Greweldinger comments: “The ecosystem approach allows the bank to find the best solution for their business need – either from us, or from a third-party provider. The big change in the financial sector right now is the technology enablement, integrating with standard technologies such as APIs, as well as the consumer requesting personalized experiences – just like in any other industry.”

Thomet agrees that the individual wealth management business and operating model will define what is needed. “We’re broadly seeing that more and more wealth managers reach out to third-party firms specialising in dedicated areas of the value chain. The objective is to enrich the offering and service and/or to bring down the cost-income ratio, as most often it is cheaper and faster to leverage specialised wealth tech firms.”

He reinforces that the service proposition is important, not just for fending off competition but also for bringing the cost-to-serve ratio down. “Wealth managers need to evolve their revenue model from just transactional to also being a service-led model. To do this, the ecosystem on offer needs to better reflect client needs.”

Risk
But like with anything, the risk and technology proposition needs to be right. Indeed, the essential thing here for users is that they can rely on a solid and secure infrastructure that evolves regularly to enable the wealth manager to continually improve their own businesses, according to Nick Eatock, Executive Chairman at UK-based Intelliflo.

Greweldinger comments: “Open APIs are a common and mature way of integrating fintech solutions into a system landscape in a secure, efficient and successful way. Every change to the front end requires a certain effort. Technically speaking, such changes require the back-end integration via API and the front-end integration via micro frontends.”

Data security within this is paramount
Eatock comments: “The main concern is security of data. Wealth managers should ensure their vendors invest significantly in security and have their solutions regularly pen tested. Standards such as ISO27001 are essential.”

Embedding such security into an ecosystem is the way forward in terms of a focus on quality as well as quantity. It also supports digital transformation because wealth manager’s own clients can then use the products and services with ease and able to trust that they are using something safe and secure, thus enhancing the trust and the service component of the relationship.

Greweldinger comments: “It has become clear that those not transforming their business models may get left behind. Failing to embrace the new digital paradigm will place companies at a disadvantage as customers, investors and clients continue to digitally transform and require solutions that meet their digital needs.”

Indeed, wealth managers are notoriously slow to engage with new trends, but with comfort over risk and security and as the digital transformation continues, so the readiness of wealth managers to adopt digital solutions has increased enormously.

Greweldinger comments: “We see a lot of demand from the wealth management and private banking space. In the UK, some of our clients include Smith & Williamson and Brewin Dolphin. In other countries, Pictet Group, Deutsche Bank and Edmond de Rothschild are among our key clients. We expect to build on these and win new wealth manager clients going forward and make the future ready.”

For vendors, the challenge is to be able to provide wealth managers with what they want.  Avaloq has launched its own platform underpinned by its own technology and recently completed one of Switzerland’s biggest IT projects: “253 separate Raiffeisen entities (246 Raiffeisen banks, six branches and the central bank) moved to one universal banking platform developed by Avaloq. The platform is available to all approximately 11,000 employees at almost 900 separate Raiffeisen sites throughout Switzerland,” says Greweldinger.

Similar models include the Swisscom and the SIX platforms – both of which act as a supermarket for third parties – again the idea is that wealth managers choose only what they need on a plug and play basis, rather than using everything that is on offer and risking some of that being irrelevant.

Thomet summarises: “Platforms provide a shop window for fintechs. It’s an effective way of bringing together the wealth manager and the market and enables the wealth manager to offer the most comprehensive and relevant range of services to an ever more demanding customer base.”