Welcome to the Frictionless Finance Report, our bi-weekly look at everything 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 examine big banks taking a stake in FinTech firms, new surveys into the evolution of Open Banking, and the Canadian Government’s consultation into Open Banking.
The New Year is well and truly upon us now as the flurry of news and articles on Open Banking picks up pace. We’re delighted to see several interviews with OBIE’s Imran Gulamhuseinwala and Alan Ainsworth feature this week, alongside several new studies into the uptake of Open Banking, and a plethora of op-eds on how the first twelve months of Open Banking have progressed.
In an FT podcast, Trustee of the OBIE, Imran Gulamhuseinwala has spoken on his first twelve months heading up the implementation body. He reiterated the need that exists for Open Banking to thrive, including customers being charged for overdrafts, or have money in current accounts that aren’t earning any interest. He went on to say that the biggest challenge his team has faced to date has been implementation by the big banks.
There has been another slew of articles discussing the progress made to date on Open Banking, and looking forward to what 2019 has to offer. Several articles, including FinTech Times, the Herald, Compelo and Verdict focus on digital banks, looking at the likes of Monzo, N26, Atom and Starling as examples of what can be achieved. Indeed, the Fintech Times reports that 8 in 10 millennials say they would switch banks to receive a personalised service.
Roni Cohen, Director of Data Science at Optimove, comments:
“In the age of Open Banking, the best way for these agile technology driven banks to effectively implement personalisation is to make the most of the available customer data, which is now also available to their competitors.”
Speaking to Compelo, Imran Gulamhuseinwala said:
“It is clear that there are signs of an emerging dynamic, vibrant and developing ecosystem – an ecosystem which is rapidly becoming more sophisticated and expansive in its coverage. But with the line of sight we have into the open banking ‘pipeline’, this is going to considerably ramp up in 2019. Today, we have over 100 regulated entities enrolled in open banking with in excess of 100 waiting to join. We expect the ecosystem to develop with even greater momentum and pace – not least as we see greater conformance with the implementation of the standards, as well as greater innovation in the market.”
In an op-ed in Finance Derivative, Ian Matthews of NGDATA agrees with most commentators that Open Banking has not yet been the phenomenon that it was once touted to be. However, he notes, that there has been several success stories, particularly in the field of account aggregation, where companies such as Chip and Yolt are making inroads.
Ultimately, he says, the “lightbulb moment” won’t come until “institutions can use huge volumes of data to deliver experiences and services that are relevant to “markets of one” – individual consumers.”
The final word this week goes to Mike Rymanov, writing in Finextra, who says that until three major challenges are overcome, Open Banking will not succeed. The challenges as he views them are, the lack of acceptance by banks, too much criticism of banks by FinTech’s and the lack of education for the public at large on the benefits Open Banking can provide.
Several outlets focus their attention on a speech made by Alan Ainsworth, Head of Policy at Open Banking, at a recent MHP Communications seminar. He made particular reference to verion three of the open banking standards, which will go live this year. He also praised the fact that the UK was the market-leader in Open Banking, stating:
“The standards that we have created are standards that can be used anywhere in the world. They are not simply bespoke to the UK.”
Mike Robb, Managing Director at MHP Communications later wrote in a LinkedIn article:
“In a world where a consumer can view their entire financial life in one place, for instance, their ability to better manage multiple balances and avoid problem debt is significantly enhanced. The impact of this on millions of people, and particularly those on lower incomes, cannot be understated.”
International payments, treasury management and foreign-exchange specialist Centtrip have undertaken a new study in to the uptake of Open Banking within medium and large firms. They have found that while adoption has, to date, been slow, 64% of those surveyed said it would save them time, and 58% said it would save them money. Coverage can be found in pymnts.com, Global Banking & Finance, and FinTech Times.
In a sign off how far-reaching Open Banking could become, there has been discussion this week of whether banks could begin to offer life insurance through Open Banking, and how it could potentially impact upon the airline industry.
Open Banking Abroad
We’re back to all systems go this week, as the New Year hangover has well and truly lifted. The biggest news in the Open Banking world this week came from Canada, where the Department of Finance has launched its consultation into Open Banking.
With the consultation paper now published (available here), the Canadian Department of Finance is calling for stakeholders to inform it of potential benefits that Open Banking could bring. Coverage can be found across a range of financial services outlets, including Finextra, Banking Tech, Betakit and Digital Finance Analytics.
Hong Kong has once again demonstrated it is ready to embrace Open Banking, following a new survey by Accenture. More than half of residents said they would be willing to share data if it meant receiving more personalised banking services.
We are witnessing more interest from our cousins across the pond in Open Banking – perhaps because of advancements made in the UK, but also with the progress made by Canada. There have been two articles in the last week that have caught our eye aimed at US audiences, from Bankrate and Wharton. Both have sought to explain Open Banking and Open banking infrastructure to American audiences.
We bring a mixed bag from the banking world this week, as we discuss Nutmeg’s latest funding round, the FCA’s new report into high-cost, short term credit, the possibility of Google or Amazon entering the banking world, and customers disposition towards their banking provider.
Following a £45m funding round, it has been revealed that one of the largest investments in digital wealth manager Nutmeg has been banking giant Goldman Sachs. The investment has been made via its investment arm, Principal Strategic Investments (PSI). The investment will value Nutmeg at £245m and will continue the US firms move into the UK banking scene following the launch of Marcus in September last year. The news was broken in a blog post from Nutmeg’s CEO, Martin Stead. Further coverage can be found in Sky News, Citywire, Reuters, FT Adviser, FN London, The FT (paywall), City AM and the Telegraph.
Last year we at The ID Co. Focused on the subject of affordability for some time around the time of the FCA’s new rules going live on November 1st. This week, the FCA released its new findings on the high-cost short term credit market. They have concluded that while the market is smaller than at its peak in 2013, it has grown since 2016. 10 firms accounted for 85% of all loans accounted for, with borrowers typically paying back around 1.65 the value of the loan.
As we’ve covered in detail in previous Reports, the emergence of an Amazon or Google into the domestic banking market is likely to have massive ramifications for both consumers and the traditional banks. In Forbes, contributor Ron Shevlin discusses this possibility, but ultimately concludes that Amazon is far more likely to partner with banks than to try and displace them.
A survey undertaken in the US of attitudes towards current accounts have shown that 30% of consumers feel no loyalty at all towards their bank. 10% of those surveyed are planning to switch banks in the next twelve months, with 45% saying finding a cheaper deal was the main motivation. In Finextra, Kirsty Berry has considered how this compares with the UK banking scene. She has concluded that despite only a quarter of consumers feeling valued by their banks, and only 2% consumers switching each year, the main reason for not doing so is a lack of perceived difference between banks. The rise of challengers such as Monzo and Starling are slowly changing this perception however.
Korea has markedly stepped up its plans to become a leader in the FinTech scene, after announcing regulatory reforms and the introduction of a FinTech sandbox. The first cohort of companies to be introduced into the sandbox will be welcomed in April following the announcement of $3.5m additional funding. The story has featured in Finextra, Fintech Futures and FS Tech.
The subject of talent is never far away when discussing the future of FinTech companies. Charlotte Crosswell, CEO of Innovate Finance, has said that with 42% of UK FinTech's sourcing talent from overseas, the future relationship between the UK and Europe will be key to understanding whether FinTech's will want to set-up, or indeed, remain in the UK.
As we related in some detail in the last Frictionless FInance Report, the relationship between traditional financial institutions, challenger banks and FinTech’s is nothing if it is not complex. Altfi have a reasoned piece in which they look at the example of Atom Bank appointing 40% stakeholder Citi Group as advisers and wonder whether this setting a precedent for the large financial institutions to take over their smaller challenger rivals. Similarly, Banking Exchange has examined a number of the larger and better-known challenger banks and FinTech’s and asked the question of what the big banks could learn, and importantly, what does disruption mean in 2019?
“Some of these mobile neo-banks and other fintech start-ups have partnered with traditional banks for access to services such as check deposits and remissions. Starling’s partnership with NatWest is one example, as is Transferwise’s partnership with French bank BPCE, which allows the bank’s customers access to the app’s low-cost money transfer service. Starling also has partnerships with investment app Wealthify and UK online mortgage broker Habito. Transferwise also has partnerships in place with Monzo and N26. Yolt has forged so many partnerships it’s difficult to keep track of them all. Yolt has partnered with Monzo, Starling, and 28 other banks; with Moneytis, another international money exchange app; with Runpath, an energy comparison platform; and with Homelyfe, an app that promises a home insurance quote in under 4 minutes. This begs the question, have these disruptors disrupted the notion of competition itself?”
Finally, we reached an interesting piece that reached our ears courtesy of Entrepreneur. They have written on the rise of the tech sector in France, via an interview with Christophe Lecourtier, CEO of Business France. The investment body, set up by the French Government in 2013, has seen under its remit, the growth of French tech firms to over 10,000, raising more than $3 billion.
“The main opportunities for French entrepreneurs lie in renewable energies, smart transportation, big data optimization, data security, Internet of Things, and the e-government.”