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 Nationwide’s Open Banking for Good challenge, a potential bank offering from a telecoms provider, and the FCA’s “Dear CEO” letter.
Nationwide's ‘Open Banking for Good’ (OB4G) challenge has been officially launched, with the Building Society backing the competition with a £3m commitment. OB4G challenges participants to develop and design products and services that can help the financially disadvantaged. In a report commissioned by Nationwide and Money Advice Trust three areas have been highlighted where digital innovation is particularly sought; income and expenditure, income smoothing, and money management and help. FinTech’s and academics are encouraged to apply with new conceptual ideas, or services that require investment.
As reported in P2PFinanceNews, the huge opportunity offered by Open Banking is encouraging collaboration between FinTech’s and banks says a new report from LendIt Fintech. While they characterise the early days of online lending as a power struggle between banks and FinTech’s, the rise of Open Banking is increasingly encouraging collaboration or mergers. In their report summary, LendIt state:
“There are four opportunities the paper identifies; improved customer experience, extending value propositions through partnerships, optimizing distribution models and focusing on digital channels of interaction and banking as a service is now a viable strategic option for financial institutions.”
“Open banking is cutting the hassle and increasing automation, helping to bring down costs and improve the customer experience” notes Huw Davies, CCO of Token in PaymentsSource. Davies is upbeat about the future for Open Banking, citing the numerous areas that it could disrupt, from Forex trading, investments, banking and property can all be simplified and offer consumers more choice and value.
Ping Identity has launched a Quickstart Private Sandbox for Open Banking and PSD2. Phil Allen, VP EMEA for Ping Identity, said:
“Although public cloud has many advantages in terms of agility, some organizations would rather deploy their initial Open Banking development environments using in-house servers or a private cloud with their own teams in charge of the entire process.”
While challenger banks have made significant headway in continental Europe because of their ability to remove friction for customers, new PSD2 requirements may offer a challenge. At this time, writes Oliver Smith in Forbes, the banks have not resolved how multi-factor authentication will work, with EU rules stating biometrics such as Apple’s FaceTime insufficient in security. This then could potentially lead to a return to memorable phrases, security questions and passwords.
Chris Skinner, in an article titled ‘Open Banking Has Arrived, Whether You Like it or Not’ argues that some of the difficulties faced by FinTech’s and banks alike relating to API’s and the permissioning process have been merely teething problems and that those who have embraced Open Banking have seen positive results. He writes:
“Where [Open Banking] leads to downstream is a rich market of start-ups, service providers, banks and non-banks, enriching the services and knowledge about their customers in real-time, all of the time. This will benefit the customer, by telling them more about their digital financial lifestyles, and provide better, more personalised service.”
Tom Eck, CTO Industry Platforms for IBM has written a new blog post on capitalising on the opportunities provided by Open Banking. He argues that digital transformation, which is desperately required by some of the larger banks, could be accelerated through the use of their in-house Open Banking platform.
The World Payments Report 2018 from BNP Paribas and capgemini has recognised the UK, Singapore, the Netherlands – and perhaps surprisingly – the US as leaders in the field of Open Banking. The US has been cited as a leader in whole because of work undertaken by banks in the absence of leadership from the regulator. The report notes that countries with high volumes of non-cash transactions per capita such as the UK, Netherlands and Sweden have tended to dominate the rankings. ‘Follower countries’ include Spain, Australia, France, Germany and Belgium, while Brazil, India, Italy and South Africa have been recognised as laggards.
Is telecoms giant T-Mobile about to enter the banking arena?
According to SEC filings seen last week, the operator has been working with BankMobile, a digital only bank, operated by parent company, Customers Bank. While BankMobile has only 1.8m subscribers, T-Mobile has 73m customers and while details remain sketchy, the tie-up could see T-Mobile customers offered digital banking services through their phone. Coverage can be found in total telecom, bank innovation, Digiday, and telecoms.com.
In an attempt to combat fraud, from next year, banks will require a name to be associated with an account when bank transfers are made. Currently, an account number and sort code are required along with the recipient’s name, although the bank does not check if the name is correct. The hope is this will stop fraudsters fraudulently tricking payees into paying money into the wrong account. Coverage can be found in the Guardian, Independent, Moneywise, pymnts.com and the FCA.
The FCA has sent a letter from the head of compliance, Jonathan Davidson to the CEO’s of all high cost, short term credit (HCSTC) loan providers reminding them of their obligations towards consumer affordability prior to new regulations being introduced on November 1st. Concerningly for “The CEO’s” it states that all current customers should be remediated, with compensation offered where loans have been mis-sold, and a halting of future loans unless there are clear policies and procedures in place to ensure that affordability is considered for all loan applications. There is significant coverage of this story, including The ID Co. (blog), Guardian, Mirror, Finextra, City AM and Reuters.
Open Banking Abroad
The CEO of Australian bank, Westpac has predicted that it will cost the bank around AUS $200m to implement. Brian Hartzer went on to say that his bank supports the implementation of Open Banking in Australia and believes that it will be positive for bank customers. ANZ Bank, CEO, Shayne Elliott also supports the rise of Open Banking, and said:
"The reality is the non-majors are growing at a rate faster than the Big Four -- their market share collectively is the fastest-growing part of the Australian banking system today. There are 27 new banks, I believe, seeking a licence with APRA either through the sandbox regime or actually formally seeking licences to enter in to the market. I think the completive environment is far more intense today than it has been in at least 10 years."
However, Australian lending platform Trade Ledger have identified risks in the manner that Open Banking is being pursued in Australia. Specifically, they have cited the lack of an implementation and governance body as enacted in the UK as a threat to the take-up of Open Banking.
“It is estimated that about 90% of banks in the US plan to invest in developing open APIs and customer-friendly payment tools.” say IBS Intelligence in their recap of FinTech trends in the US.
BBVA has launched a Banking-as-a-Service platform in the United States. While Open Banking has not yet been fully implemented in the US, BBVA is taking a proactive stance with its new BBVA Open Platform. Interested companies can also make use of the Open Platform sandbox testing to work on their proposal before fully signing up.
Could we see the implementation of Open Banking as early as next year in Brazil? That’s the claim made by BNAmericas. It notes that currently, the Brazilian banking sector is highly concentrated and regulators are looking at methods including Open Banking as a means to lower customer fees and interest rates.
CB Insights have produced a comprehensive report on the state of FinTech, titled “How 60+ Startups Are Disrupting Retail and Commercial Banking Around the World”. As always with CB Insights commentary, the paper is packed with statistics and insights invaluable to anyone working in the banking or FinTech sector.
The UK Government’s Department of International Trade has sent a substantial delegation to Sydney to meet with their Australian counterparts at the SIBOS 2018 conference. Participants include Bud, NorthRow, Cube and Suade.
Michael Ward, British Consul General and Director General, UK Department for International Trade Australia and New Zealand commented on the FinTech delegation:
“It’s been a tremendous year so far for UK-Australia trade relations in financial services – including a delegation led by the Lord Mayor of the City of London and the establishment of the UK-Australia Fintech Bridge earlier in the year – and I am delighted to see such a significant UK presence in Australia during Sibos.”
AXA Investment Management is to restructure its Framlington Financial Fund to invest specifically in FinTech companies. The fund is currently worth £55m. The move will see the fund renamed as the AXA Framlington FinTech Fund.
Finally, some sobering reading for all FinTech’s. New research carried out by Finextra has revealed that a lack of understanding from the public on the work that they do means that they are not trusted by the public, with 27% of respondees to a survey of 2,000 people citing a lack of understanding as the reason they trust big banks more. Only 61% said they would be comfortable depositing £500 with a FinTech and more than half (53%) stated that the ability of FinTech’s to guarantee the safety of their money would be key in influencing their trust.
The ID Co. News
We’re continuing to talk all things affordability before the FCA’s new regulations go live on November 1st. In the wake of the ‘Dear CEO’ letter sent out this week from the FCA, we examine its potential impact in this blog.
We’ll be attending the Open Banking Expo on November 27th in London. If you’re in attendance, be sure to watch out for our stand. We’ll also be hosting an exclusive lunch for twenty people. If you’re interested in finding out more contact us today.
The monthly Open Banking Excellence meetup groups continue to grow at pace. We hosted our second in London on Monday and packed the room out to hear from an excellent group of speakers. Interested in participating? Find out more here. Our next meetup in Edinburgh will take place on November 19th. Book your place today and join the Open Banking revolution.
As always, if you have a story or article you’d like to contribute to the Frictionless Finance Report you can do so by contacting the team on email@example.com.