Here in the product team, we’ve been working hard over the last few months to tackle some of the in-built, infrastructural inefficiencies that make an adviser platform’s job of handling client money more difficult and complex than it needs to be.
In particular, we’ve been exploring how we can improve the process for receiving, reconciling and processing cash, so that our operations team doesn’t get bogged down in spreadsheets, and end clients don’t have to wait any longer than they need for their money to land in the right place.
There’s plenty of work we want to do in this area. But today’s launch of ‘instant deposits’ is, we think, a really important first step. In this article I’ll walk you through what it is, how it works, and why we think it’s so important for financial advisers and clients alike.
A reminder: what’s the problem?
Typically, when a client makes a payment by bank transfer to their adviser platform, the cash will be handled by the platform’s operations team – and both the client and their adviser will have to wait anything from a few hours up to a few days for the money to be reconciled and allocated to the right account, ready for it to be invested.
It’s a real point of friction in the investment journey. As well as preventing clients from putting their money to work as quickly as possible, it also creates a serious headache for advisers, who have to make sure their clients send money in time to meet the internal deadlines set by their platforms’ various cash operations teams.
Nowhere is this more visible than at Tax Year End, when platforms will ask advisers to ensure cash is sent several working days before the end of the Tax Year, to make sure they can allocate it in time. Given the instant, on-demand world in which we now live, this seems to me unbelievably outdated.
Making life fundamentally easier for advisers
So, how does our new ‘instant deposit’ functionality help? Well, thanks to our integration with Lloyds Bank’s ‘Event Driven Notification’ API, clients using Seccl-powered platforms can now put their money to work instantly.
As a reminder, we don’t offer a platform directly to advisers here at Seccl, but provide the custody, investment technology, user interfaces and client money banking that, when combined, allow firms to operate their own platform – controlling the customer experience and reducing the client cost in the process.
Now, when a client correctly sends money by bank transfer to their Seccl-powered platform, the money will be visible in their platform account straight away, and can be executed in the market in under 10 seconds.
“The money will be visible in their platform account straight away, and can be executed in the market in under 10 seconds”
As Dan, our Head of Customer, puts it, “this is just one of the ways in which technology can make life fundamentally easier for advisers using Seccl-powered platforms.”
“No more rushing around at Tax Year End to make sure clients send their cash ahead of an internal operations deadline; now, they can move and invest their cash completely instantly, and entirely seamlessly. It’s also a good example of how we want to make the experience as efficient – and therefore affordable – as possible.”
Creating a new standard for payments efficiency
As Dan mentions, the new functionality is not just exciting for the vastly improved experience and convenience that it offers clients and advisers.
As well as removing a significant point of friction and delay in the investment journey, the new functionality will allow us to provide a market-leading level of operational efficiency to the platforms that we power.
To put it in perspective, a comparable adviser platform can manage around 11,500 client payments per operations staff member per year. Armed with this new technology, our operations team can now manage around 250,000 – or roughly 20x. In the future, we expect this to grow to 1 million+ client payments per team member per year.
“Armed with this new technology, our operations team can now manage around 250,000 – or roughly 20x”
This might sound like it’s more interesting to us than you, but just think of the positive impact this brings to advisers and clients using Seccl-powered platforms – it means they can provide a service that’s not only better and faster than their competitors, but more affordable, too.
For an example, just look at the P1 Platform. Powered by Seccl, it was recently named Digital Process Champion by NextWealth, and voted number one for overall service by advisers in The Lang Cat’s most recent survey.
As James Priday, P1’s CEO, put it, “this is a really welcome development that creates a positive outcome for clients, advisers and our own platform staff alike. It’s thanks to operational efficiencies and digital processes like these that we can operate our own platform without significant headcount – all while providing a better service than existing, third-party platforms.”
So how does it work?
The new functionality is made possible through collaboration with our client money banking partner, Lloyds Bank – whose growing API suite allow for the streamlining of internal cash operations processes.
Its webhook fires off a notification every time there is a balance-changing event. The notification for faster payments arrives with the name, account number, sort code and payment reference of the payer – along with a timestamp and the new balance on the account.
With this information, we can match the payment to an awaiting expectation in the system and settle it without an ops analyst lifting a finger.
It may not seem all that ground-breaking to the modern fintechs of today, but, as a process, it’s leagues ahead of the 50-person payment teams we’re used to seeing in custody departments across the industry.
We’re not done yet…
Although we think this is a massive step forward, it clearly doesn’t tackle all the problems that currently plague cash operations.
We currently predict around 50% of payments will arrive and be settled by the above flow – which requires the payer’s details to exactly match those stored on the client’s account and the amount awaiting expectation. Payments that are miskeyed, missing an expectation or sent from a bank account we don’t recognise will still go unmatched by the system.
So what are we doing about it? Our goal is to cut off unidentified receipts at their source, by splitting payments into two camps – unallocated and unidentified:
Unallocated payments are those that match bank details but don’t match the expectation in our system. Here, we know who the cash is for, but not what to do with it.
Unidentified payments cover a multitude of sins – from clients paying in from a new bank account, to cash arriving from an unknown source without any indication of its owner or intention.
Of course, there are solutions to tackling almost all origins of unidentified receipts, but we’re not going to be able to deliver them all in one build. So, to equip our Cash Operations team with the tools to process these payments, we have built out an ‘alleged transaction’ flow.
Whenever a payment cannot be settled immediately, the system will now create an alleged transaction that includes all the payment details, along with a reference, a timestamp and a report of why it was not settled.
It means that, without our cash operations team touching a button, our system can now reconcile in real time with our external bank account. This allows the team to work on an exception basis, only having to investigate any payments which end up in this alleged workflow.
Suffice to say, there’s plenty more work to be done in this area. We’re just getting started!