Published 16. May. 2019
Financial cockpit for the consumer
Is it possible to get real-time information on the current status of mortgages, pensions, insurance, and loans? What is the interaction between mortgage and pension? Linking financial systems is the future of financial management. Find out how they are developed in The Netherlands through this insight by Topicus.
Mortgages, pensions, insurance, loans – the average consumer needs to consult a handful of sources to gain real insight into their own financial situation. In the coming years, he or she will, fortunately, be given the tools to view everything in one place.
A pilot will be launched very soon which will give people a real-time insight into their pension. This is unique because many people only receive a letter once in a while with information that is often already outdated. Real-time information offers more opportunities to see whether pensions are still up to standard.
“People are used to getting a static overview”, explains Clint van Haalen, managing director of Topicus sector Finance (Topicus is one of the solution providers attending IndustryForum Banking event). “Then they think: This is what I can count on. However, such an overview assumes they will continue to do almost the same from that moment onwards until their retirement. While people might be wondering: can I afford a sabbatical for a year? And if I do this, will I still be able to go on a round-the-world trip when I retire? What if I start working one day less or what if I want to retire sooner? People also often want to know the consequences of dismissal, disability or even the passing of their partner in advance. This type of information can help you make the right decisions and change your pension plan if necessary”.
The same restrictions apply to mortgages. These are often only financed on the basis of the current situation. For the financial consequences of future changes, you might have insurance which covers the greatest risks. Almost nobody calculates the consequences of a divorce in advance when purchasing a house, while statistically speaking there is a good chance that this might happen. Another example is that study costs for children are not included in the overall financial picture. If it was, people might choose a different mortgage.
What is also not taken into account, is the interaction between mortgage and pension – while the amount of remaining mortgage or ongoing costs towards the home, may put a heavy burden on the pension requirement. Van Haalen reveals, “What you actually want is a website or app where you can add all the important financial information to calculate financial scenarios and act accordingly”.
Duty of care
At Topicus, they have been working on such a website for several months. Topicus supplies software to almost all major financial institutions in the Netherlands, which means they know what is possible technically. During their lifetime, the average Dutch person ends up in a system built by Topicus at least twice. This can be in the fields of finance, education, healthcare or government. The tricky thing is not to build a website or app which collects all the data, but to prepare all the systems which need to deliver the actual information – and then ensure there are financial products to meet the wishes the people derive from their new insights.
A logical question is what incentive does a financial institution have to supply information to such a portal, as it would be a financial cockpit where the consumer is in control. “We certainly think we can get our customers on board”, explains Van Haalen. “Pension funds, for example, have a duty of care. They can show greater social responsibility by enabling their clients to prepare a complete financial picture for their retirement”.
Banks are legally obliged to open their data to consumers who want to link other services to it. However, a portal will also enable banks (and other institutions) to develop new business models, discloses Van Haalen, “The traditional adviser is focused on selling a product, such as a mortgage or pension insurance. In the future, consultants will have a much broader field of activity. They will not sell a product, but instead, they will give advice which takes into account all the financial factors in a person’s life”.
Financial institutions will have to look at the whole financial picture instead of looking at separate product groups. In fact, they should focus on their own work processes and reason from the perspective of the consumer and his or her needs and interests.
Linking financial systems will not only benefit people who want to take matters into their own hands, but also those who can’t. State Secretary Tamara van Ark of Social Affairs recently launched an initiative to give municipalities more powers to find out early on whether vulnerable people are in danger of getting into debt. This could be done, for example, by linking data from benefits agencies, bailiffs, the tax authorities, energy companies and the central judicial collection agency (which takes action when people no longer pay their health insurance premiums). The expectation is that legislation might make this possible in 2020. Topicus has no financial interest in the construction of such a system, but it does demonstrate how broad the advantages of linking can be.
The success of the State Secretary’s plan will depend in part on the advice given by the Dutch Data Protection Authority because the collation of a significant amount of financial information in one portal naturally entails considerable risks to privacy.
“This is why we want a control to be in the hands of consumers, not financial institutions”, emphasizes Van Haalen. “They determine which data they want to link and who will gain access. We produce the software which enables this. We see it as our task to convince our own customers, the financial institutions, that it is also in their interest to collaborate in this venture. Ultimately they have a duty of care towards the consumer, who they can better serve by knowing more about their personal circumstances”.
A significant amount of technical work is already being done in the background to enable linking. For example, by increasing the use of standardized communication between systems. An extensive range of customized systems makes mutual communication complicated. This also creates security risks as hackers have more ways to enter. One standardized security protocol to unlock data can be managed much more efficiently.
Van Haalen is convinced that consumers feel the need for better insight into their financial situation, possibly with an accompaniment of a consultant.
“The options are really very extensive. In theory you could also link healthcare systems. For example, if you have to use medication which is not covered through health insurance, it will have an impact on your financial perspective. Of course you do not want to lose sight of this. We have been used to companies determining how we have our financial data presented to us. This is a thing of the past”.