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Open banking, PSD 2 could help banks' foray into robo advice: HSBC, Blackrock

The arrival of open banking and the second payments services directive in 2018 will not hamper plans by major banks to enter the market for "do-it-yourself" investment management and may even help them, financial services executives said Dec. 6.

The second payments service directive, or PSD 2, an EU directive, and the Open Banking standard in the U.K., will both give third parties such as fintech companies access — with permission of the customer — to bank account details in order to initiate payments and provide services such as financial advice and price comparison services. This has prompted fears in the banking industry about fintech companies taking market share from banks, and of competition between banks themselves becoming more intense as it becomes easier for customers to compare products and switch providers.

HSBC will start providing automated, online investment advice in 2018 to retail banking clients with £15,000 or less to invest.

According to Dean Butler, U.K. head of retail wealth at HSBC Holdings Plcs Retail Banking and Wealth Management division, PSD 2 and Open Banking present just as much of an opportunity to grab a share of the DIY investment market as a threat: "PSD 2 and Open Banking can actually give us more visibility and help us to become part of the broader retail banking value chain," he said in an interview on the sidelines of Fin-k Tank, an event organized by financial website Boring Money in London.

Many of the U.K.'s major retail banks pulled out of the market for providing investment advice for customers with smaller savings pots following a series of mis-selling scandals. Santander UK Plc was one of the banks implicated, having been fined £12.4 million in 2014 by the U.K. Financial Conduct Authority for giving unsuitable advice to consumers about the state of the stock market.

But last year the U.K. Treasury raised concerns about the large numbers of the general public who were left without access to investment advice because of the cost.

Now a number of U.K. banks are re-entering the market for small-scale investment advice and management, but via robo advice as an alternative to face-to-face advice. Nationwide Building Society, National Westminster Bank Plc and Santander are all either looking into providing robo advice or in the early stages of rolling out products.

"Banks already have all the clients. If they really put their mind to it, they can dominate the space for DIY wealth management," Michael Gruener, managing director, head of BlackRock's EMEA retail business, said during a panel discussion.

Incumbent banks' move into robo advice is a "largely defensive play" to stop them from losing savers to online investment platforms such as Nutmeg and MoneyFarm, an executive from a derivatives and equities trading platform said on the sidelines of the conference, on condition of anonymity.

"Robo advice is going to be a very long game for the big banks, because it's not really clear at the moment how it makes money," he said.