Welcome to the Frictionless Finance Report, our bi-weekly look at everything that’s new in the world of Open Banking, FinTech and consumer experience. If you’d like to receive this in your inbox every other Wednesday, simply fill in the form at the bottom of the page.This week we cover the one-year anniversary since Open Banking was launched in the UK, the love-hate relationship between big banks, and FinTech’s and Europe’s most valuable FinTech.
Sunday, 13th January marked one year since the Open Banking regulations were made live in the UK. Celebrating the anniversary, and to consider what the next year may hold in store, there has been a plethora of news articles.
With that in mind, let’s give the opening word to Imran Gulamhuseinwala, Trustee of the Open Banking Implementation Entity:
“Two years ago, Open Banking was regarded by many as a typical compliance exercise championed only by a handful of FinTechs – more tech spend driven by compliance rather than business case or customer need. This is no longer the case. Banks have very firmly moved from viewing Open Banking as a compliance exercise to an opportunity to compete and innovate.
Consumers are gradually being offered products and services which will securely help them move, manage and make more of their money. The often over-looked, hardworking population of SMEs – now totaling over 5m businesses – are also benefiting from new technologies which are supporting their efforts to boost profit, performance and productivity.”
From the Competition and Markets Authority, Bill Roberts, Head of Open Banking, commented:
“Open Banking has already made huge strides over the past 12 months, though it’s still in the initial stages of roll-out. We’re delighted that around 200 organisations are now in the process of coming onboard - including some of the major tech companies - and we anticipate this technology will revolutionise how banking operates and people manage their money in the years ahead.”
Nearly all of news articles focus on the slow start made by Open Banking but give reasons to be positive for 2019, with Technative even making use of the Winston Churchill quote, “this is not the beginning of the end, but it may be the end of the beginning....” Their focus is on what will happen in 2019, looking at security and payments amongst other factors.
Finextra have spoken to some of the major banks to gauge their take on the progress made by Open Banking. Danske Bank, HSBC, Barclays and Nationwide have all been encouraged by the start made, and while recognising many in the UK have not heard of Open Banking, consumers are already using Open Banking initiatives or products.
Information Age have followed the consensus by writing that while there has been a slow start for Open Banking, if consumer and privacy concerns can be won over, then the future is bright. Finally, FSTech have been more cautious in their assessment, noting there has yet to be a “revolution” in banking as some proponents predicted.
Within the birthday wishes, many commentators have also focused on what 2019 will bring within Open Banking. Under PSD2 regulations, screen scraping will no longer be available after September. With that in mind, Finextra have examined the benefits Open Banking provides, focusing on security, regulation, speed and stability. In the pages of FinTech Futures, Finovate have written on how Open Banking will prosper through 2019 and beyond. They conclude:
“But open banking can be a very positive thing for the banks that adopt early, and there is long-standing momentum behind it. It’s good for consumers, good for innovators, and appealing to regulators. That’s a combination that can’t be resisted.”
In a compendium for Verdict titled “Open Banking trends in 2019 will continue to dominate” journalist Briony Richter has spoken to some of the leading advocates of Open Banking. In a similar vein, Specialist Banker have also illustrated why banks should focus more on Open Banking, as failing to do so will see them miss out on a prospective revenue opportunities. Bloomberg have been more reticent to heap praise on Open Banking, and have quoted Starling Bank CEO, Anne Boden who said:
“The U.K. still hasn’t seen the hockey stick of growth in disruptive new players everybody was predicting. Everybody was expecting PSD2 to happen and all these companies would be fighting with each other to provide services to customers.”
In the latest piece of research on the state of Open Banking, Pepper, the digital only bank created by Israeli bank, Leumi, has shown 66% of respondents believe that one of the Silicon Valley tech giants will enter the banking scene. Just over a third also think the high-street banks will be split into specific services such as payments, loans or money transfers.
Michal Kissos Hertzog, CEO of Pepper, said:
“The two main challenges for banks today are utilizing the huge amount of data they have gained for the benefit of customers; and collaborating with fintechs and third parties - which are made possible in light of Open Banking – in order to offer the best value proposition".
Welsh-based challenger bank, Chetwood Financial has been granted a full UK banking license. The bank is being backed by Elliott Advisers and follows a £40m cash injection. The firm believes it can make inroads against traditional players through its adherence to technology and goal of partnering with other companies to offer products. Chetwood recently launched its latest product LiveLend, which grants borrowers better rates as they improve their credit score. Full coverage can be found in Finextra, Banking Tech and Specialist Banking.
The relationship between the major banks and FinTech’s continues to garner scrutiny, a trend that is unlikely to disappear now some of the major tech companies have market caps in the same range as banks. The possible emergence of a Google, Amazon or other into the banking scene will also continue to fuel the flames. In Bank Innovation and Bobsguide, the relationship between the two is examined. Bank Innovation focus their attention on the respective merits of both, with FinTech’s having advantages in developing and adopting new technologies, while banks have legacy and a massive customer-base. Ultimately, they argue, it could be that the work of FinTech’s are forcing banks to evolve, bringing in better products and services for their customers. Bobsguide have taken the approach of asking whether they should be working in competition or collaboration, before asking if working in tandem offers the best of both worlds.
Similarly, the competition between the high-street banks and challenger banks has featured in Specialist Banking. The ability to offer a true and deep understanding of their customers, be in a position to offer personalised product offerings, and collaboration with tech partners will determine who comes out on top.
RBS, on behalf of its digital offering Bo, has made an investment of £2m in FinTech, Loot. With £3m already invested last year, the investment takes Bo’s shareholding in the company to 25%. Loot has focused on helping students and young people manage their finances, boasting 175,000 sign-ups. Coverage can be found across a range of outlets, including City AM, Business Matters Magazine, Banking Tech, Specialist Banking and Altfi.
Writing in a blog post on her company’s website, Starling Bank CEO, Anne Boden has announced plans to open an Irish subsidiary to counter fears laid-bare by Brexit. From there, Starling’s plan is to launch in France and Germany. The news has garnered coverage in the Irish Times, Verdict, and Finextra. And according to TechCrunch, rival Monzo could be preparing for a US launch.
We’ve devoted many lines to the recent progress made by banks to restrict access to gambling sites. Now, more high-street banks have announced they are to follow suit. According to Money Saving Expert – whose Martin Lewis has been instrumental in persuading banks to do so – Bank of Scotland, Lloyds, Halifax and Santander will implement blocks.
The rise of challenger, neobank, or digital only banks is surely a trend that is going to continue to gain news headlines through 2019. FT Adviser has reported almost a quarter of Brits are considering opening a digital only bank account. Of those who said they had no intentions of opening a new account, 61% said it was because their current bank treated them well.
"When done right, digital banking can offer customers the speed, convenience and transparency that is becoming increasingly important for consumers in most sectors,” said John Ostler of Finder.com
Apps are now more popular in the UK than internet banking. While the difference was almost negligible at 39.2% versus 38.6%, it marks the first time apps have surpassed internet banking in popularity.
HSBC have introduced a robot, named Pepper, to work in their Fifth Avenue Store in New York. As well as posing for selfies, Pepper can also answer customer enquiries and flag promotions and products.
Open Banking Abroad
It’s a shortened look at Open Banking from across the globe this week as we await banks and regulators to recover from their festive hangover. The big news comes out of Australia where the new Consumer Data Rights are on the verge of implementation. Before they are however, Australian Broker has called for an awareness campaign so consumers have a full understanding of their new rights, which incorporates Open Banking. Drawing on the lack of understanding that has been evident in the UK since the introduction of Open Banking, they write:
“Consumers are probably unaware that Open Banking can deliver a much more streamlined and improved loan or mortgage application process. They also probably don’t realise that it could help them save money on their weekly shop, as retailers analyse transactional data and lower their prices on certain products or create personalised offers as a result.”
In the United States the creation of the Financial Data Exchange has breathed new life into Open Banking. In their trends to watch out for in 2019 article, American Banker have pinpointed Open Banking as a key development, saying the Financial Data Exchange is key to giving banks more confidence in the security implications surrounding Open Banking.
Congratulations to our friends at FinTech Scotland, who as well as celebrating their one year anniversary, have this week announced that the volume of FinTech’s trading in Scotland has more than trebled over the last year, to eighty.
Stephen Ingledew, chief executive of Fintech Scotland, said:
“It has been a privilege over this last 12 months to lead the FinTech Scotland team and galvanise the broad range of support from across Scotland to support the growth of innovative fintech enterprises in this last year. Our progressive, collaborative and inclusive agenda is certainly establishing Scotland as a major global fintech centre which can contribute to Scotland’s economic and social ambitions.”
N26 has become Europe’s most valuable FinTech. This comes as the company raised $300m in funding at a valuation of $2.7 billion. N26 is a German based digital bank, which offers current accounts and is famous for its translucent bank cards. The deal is the largest funding round since Revolut raised $250m last year. N26 have said they will use the capital to launch in the US, where it has not yet acquired a banking license. There is extensive coverage of the story, including in Finextra, The Telegraph, City AM, Banking Tech, TechCrunch, Cheddar, Venturebeat, pymnts.com and AltAssets.
The Investment Association, the trade body for the UK’s fund management industry, has opened its doors to a new cohort of companies for its FinTech accelerator scheme. More than 70 FinTech’s have signed up in the last six months.
UK tech companies saw investment to the tune of almost £2.5 billion in 2018 according to data from London & Partners and PitchBook. The figure was the highest in Europe, with investment in French and German companies the next highest. The French system has been the subject of praise from Claus Christensen, CEO of Know Your Customer, who writes:
“The rise of fintech cannot be ignored and we believe France is taking bold and necessary steps to harness it. The AMF acknowledges that if its possibilities are to be realised, it must win the confidence of the wider business community. Strong but responsive regulation will do that.”
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