The first and largest digital wealth manager in the UK, Nutmeg has more than 140,000 clients and £3.5bn in assets under management. Last week JPMorgan acquired Nutmeg for an undisclosed sum, having valued the fintech at £700m according to the Financial Times. Finanser’s CEO Chris Skinner says it will give JPMorgan a quick leg up into the UK market – as well as offering a complementary wealth management service to the Chase digital retail proposition that they have been developing. JPMorgan are able to follow in the footsteps of Goldman’s Marcus now, but it’s too early to say if either will succeed in breaking the dominance of Barclays, HSBC, Lloyds, and NatWest.
Although Nutmeg’s 2019 accounts showed a pre-tax loss of £22m, it’s likely JP Morgan see wealth management as the path to profitability in a competitive retail market with record low interest rates and tight regulation under UK-EU equivalence.
At the end of 2020, before the JP Morgan announcement, we spoke with Max Rae, Head of Product at Nutmeg, about how Nutmeg is using Open Finance to make investing easier.
What opportunities are you seeing for Nutmeg with Open Finance?
Nutmeg’s always had a good platform for the transactional services you’d expect from a wealth manager. From ease of account opening to managing investments, we make it really easy for our customers to get into investing. With Open Data we see an opportunity to transform the experience into something much more holistic. We want to help customers plan for their future by seeing their full financial wealth across all providers and offer them tools and calculators to make better decisions. The sort of thing you would typically get from a financial advisor in the traditional sense, we want to put that power in the customer’s hands, using Open Data as the enabler.
How do you see the wealth management industry changing as a result of Open Data?
There will always be an appetite for traditional services, as some people want that human interaction and are happy to pay for it. What Open Data will do is open up wealth management services to many customers that have not been considered in the past. If they do 80% of planning themselves, but for 20% they might reach out to an advisor, it is going to open a lot of benefits while giving most of the power to the customer.
Does opening up wealth management to all income levels increase the risk of people getting into financial difficulty?
On the one hand you have regulated financial advice, and on the other you have guidance and options. With the latter you can provide options for customers, like, this is best practice for getting to your retirement goals. Some customers want regulated financial advice, but not all customers. Nutmeg focus on offering as much self-serve and best practice to our customers so that they can make the decision of what is right for them.
Do you see pension engagement improving?
We are going to have an average of 11 jobs in our lifetime in the UK. That means 11 pensions, meaning most couples might have over 20 pensions scattered around. We don’t know where they are, how to find them, how to consolidate and things like that. So Open Finance will really help with that by allowing customers to get control on that information. It will allow better planning and ultimately consolidate your pensions into one place. We see this revolutionising the pension industry.
Why are most people still reluctant to engage with their pensions?
I think pensions are difficult and it is hard to plan for something that is 30-40 years away. It is hard to make it tangible for people. I think the first step is giving visibility over all pensions and what your retirement journey might look like. Then it is about how you start to break that into smaller component pieces for customers so that they can digest it. It is not just about marketing saying that planning for retirement is a smart thing to do. It is how you make it into bite size chunks for the customer to engage with. It is a lot more than marketing.
Are customers waking up to the pensions crisis and coming to Nutmeg for a solution?
Interest rates have been so low since the financial crisis in 2008. You get nothing for savings, so people are turning to fintechs like Nutmeg with an easy proposition for getting into investing. The fintech industry is based around transparency. There are no sneaky surprises around your money. You can access via an app instantly. This has building the confidence with customer and removes barriers. These are some of the factors of why people are investing more and doing it more with fintechs.
Are large pension providers reluctant to embrace Open Data?
It is a mix. I think some pension providers will embrace it, just like some big banks have embraced Open Banking. Banks had to due to regulation, but some have gone a lot further than the regulation. Similarly, some established pension providers are turned off by the forecast ROI. Those that do tackle it will benefit, and those that don’t will get left behind.
How are Nutmeg tailoring their approach to the increasing competition that arises from Open Finance?
More competition is going to be a result of this. But competition breeds innovation. We are well placed to innovate. We are all about developing new products for customers. We see competition as an opportunity to do this. As we are focused on building enough tools and services to make it easy to invest, we are not just competing on the lowest rate. It will positively impact inclusivity by providing products that were not available, which creates more opportunities for customers to get into investing and plan for their retirement.
What is your view on the pace of change with Open Finance?
I definitely think things will happen faster than with Open Banking. We are seeing payments with Open Banking exploding. Up to 800% growth in that space. Customers are getting more comfortable with it. Customers will start demanding it before it is ready. They will ask why can’t they see their insurance on a dashboard, why can’t they see their entire pension pot, and that could be the “Uber moment” for Open Finance.
Final thoughts
With the acquisition by JPMorgan, Nutmeg are now cooking on gas. Not that they weren’t going places already. As one of the shining stars from the bright constellation that it the UK fintech scene, Nutmeg was pushing the Open Finance agenda years before there was one.
Despite buying Nutmeg, Sanoke Viswanathan, JPMorgan’s CEO insists that it is “building Chase in the UK from scratch”. It’s too early to tell whether this signals the end of the Nutmeg brand, but it certainly won’t signal the end of their enthusiasm to innovate and create new products that get people investing.
The big question is will Chase (plus Nutmeg) succeed?
Finn, JPMorgan’s digital bank in the US, folded in 2019. Add in the challenging UK retail banking conditions mentioned earlier, and it sounds a bit risky. But given their focus on digital capabilities and the leg up from acquiring Nutmeg’s customer base, Chase is off to a great start. JPMorgan is also exceptionally good at retail banking and has deep pockets, with tens of billions of dollars in excess capital. If anyone is going to succeed a making at making the UK challenger bank model profitable, JPMorgan are in a highly favourable position to do so.
Read our report “Uncovering the true potential of Open Finance” for more insights on the solutions and products being developed across the industry today!
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