Welcome to the Frictionless Finance Report, our monthly look at everything new in the world of Open Banking, FinTech and consumer experience. If you’d like to receive this in your inbox on a Wednesday, simply fill in the form at the bottom of the page. This week we examine security implications for Open Banking, the rise of financial inclusion, and the growing success of FinTech in the UK.
For consumers, one of the overwhelming issues with which they must grapple is that of security within Open Banking. As we’ve covered off in a number of different articles, messaging has been confusing. From being absolutely secretive over bank details, they are now told that it is totally secure to log-in to their online banking and provide third parties access to bank details.
Security within Open Banking will therefore be paramount to its success. More so, the perception of how secure it is to the customer will be even more important. To that end, there have been a number of articles looking at this very subject.
Perhaps concerningly, a new report from Accenture has found that bank executives remain sceptical as to the security of their ecosystems within the Open Banking realm. They note that while 90% of the execs polled for the survey thought that customer trust in security to be important or very important, a mere 31% had confidence in their ecosystems.
The report also stated that Open Banking would help banks in identifying unmet customer need, and in helping them to truly understand their customers.
Alan McIntyre, global head of Accenture’s banking practice, said:
“Security is only as good as the weakest link in the network of ecosystem partners, and the global trend toward open banking is increasing the spiderweb of interconnectivity among banks and third parties — creating additional points of weakness and vulnerability in banks’ network security.”
The security impediments around Open Banking have been furthered in Bobsguide. They refer to comments made by US cyber-security firm Carbon Black who state that:
“The unintended consequences and externalities involved with the Open Banking initiative will be pronounced because the regulators and policymakers do not appreciate the organization and sophistication of modern cybercriminals.”
The comments follow a report issued by security firm Arxan with Aite Group which found that of the thirty applications designed by financial service firms, and tested for the report, nearly all of them could be reverse-engineered. This could have the result that hackers and other cyber-criminals could find back-doors, or otherwise tamper with the applications.
Could it be that the perceived failings in security around Open Banking security are derived from the big banks failing to invest sufficient skin in the game? In Finextra, Open Vector argue that the UK’s largest banks have not as yet invested fully in the opportunities that have been presented by Open Banking, particularly around customer data.
Further reading: 6 Reasons Why You Can Place Your Trust in Open Banking [blog]
The Innovate Finance conference at the start of the month provided another platform for the great and the good of the Open Banking world to provide some further context around the subject. There were several write-ups, including Finextra, Bobsguide, Computerworld and City AM. The key quote came from OBIE Trustee, Imran Gulamhuseinwala
“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.”
“Open Banking is not happening simply because the regulators are mandating it - it is happening because there is a commercial opportunity and because there is an opportunity to make the financial infrastructure of a nation more efficient, more flexible and serve customers better. We are looking forward to the opportunities it will bring across the economy and society as a whole.”
Best of the rest:
- As Open Banking explodes across sectors and geographies, Vegas Slots Online looks at how it could transform the gambling industry.
- One industry that is ripe for Open Banking is the mortgage industry. Mortgage Finance Gazette have the latest news.
- Could Open Banking be used within the legal sector for AML and KYC checks? Law Gazette has the answer.
Open Banking Abroad
As the date for Open Banking implementation in Australia draws near, we’ve seen a number of new articles published on the subject, while further commentary has reached us from New Zealand.
We have three articles that caught our eye coming out of the Australian market over the last few weeks, covering the extent that Open Banking can inform mortgage procedures, help with bank switching rates and on customer demands. As we’ve witnessed in the UK, consumers are catching on to the benefits that Open Banking can provide, and in Mortgage Business, it is argued that those banks that can provide the best service to their customers through Open Banking and other tools will be best placed to capitalise on the new technology. ABC focus their attentions on the power that it will give to the consumer, initially allowing customers to switch banks or accounts with far more information than they have currently. Finally, Broker News state that Open Banking, by providing a plethora of new products and options for consumers in the mortgage market, will work to the benefit of brokers by working as trusted advisers.
New Zealand Commerce Minister Kris Faafoi has stated that the country will look to deviate from the Open Banking legislated for in Australia by allowing banks and the payments industry to take control of the Open Banking system. The concept has come in for criticism, but Faafoi insists that unless significant progress is made, the Government is ready to legislate to make it happen. News via Stuff.
The rise of Open Banking and the growing FinTech scene across the globe has allowed for innovation and new industry thinking across payments, banking, compliance, onboarding and more. One area that it could be particularly impactful in, is in benefiting those are currently unable to access banking services. Reversing the trend of financial inclusion, by granting access to those ‘unbanked’ or ‘underbanked’, could bring real-world benefits to millions of people throughout the world, particularly in emerging and growing economies.
We start with the FT, and a new report from the World Bank which has concluded that it will be very difficult, or indeed impossible, to eradicate poverty without financial inclusion. The FT report states:
"Ms Pazarbasioglu [vice-president for equitable growth, finance and institutions at the World Bank] is on the front line of a key battleground in global development. In 2017 there were still 1.7bn adults in the world without an account at a financial institution or a mobile money provider, according to the latest Global Findex database published by the World Bank. While this has improved since 2014, when 2bn people were classified as “unbanked”, it still represents a huge mountain to climb.”
China, India, Pakistan and Indonesia host the bulk of the world’s unbanked population. The World Bank has partnered with the IMF to bring FinTech in to their agenda to help propagate the idea of financial inclusion across the world.
Business Insider has covered the issue from a UK perspective, asking the question: if banks don’t simplify their customer onboarding, will they lose out on revenue to FinTech Challenger’s? That's a distinct possibility as they examine how difficult it can be for someone with a poor credit score, or lacking in the right pieces of formal identification often struggle to open current accounts. Moreover, this is harmful to the consumer also, as it often costs more to pay by cash than direct debit for bills and leads to the poorest in our society paying the most for services.
Access to cash, as we have examined on these pages, is another large part of financial inclusion. FS Tech have looked at the government’s launch of the Joint Authorities Cash Strategy (JACS) Group to “safeguard the future of cash and ensure its availability for years to come”. The announcement was made by the Chancellor, Phillip Hammond.
What is the likelihood of one of the FAANG companies making an entrance into the UK banking scene? Speaking at the Innovate Finance conference at the start of the month, OBIE Trustee, Imran Gulamhuseinwala said he did not see any immediate interest from the big tech companies in entering the UK market. Gulamhuseinwala said:
"They may - and I hope that they will - converge over a period of time, but at this point they are very different. I can't see any big decisions being made in Mountain View or any of these other places where they will take a view to target the UK market," he said. "So I don't see it as being imminent at the moment."
In the US however, we’re beginning to see some more traction. Lately we have seen some significant tie-ups between some of the big banks and tech companies, most notably, Goldman Sachs and Apple.
“Tech giants such as Amazon and Google parent Alphabet have already taken steps to encroach on banks’ turf in areas ranging from small business lending to payments. That’s because of their need to fuel revenue growth in new verticals and strengthen their grip on existing businesses. Big U.S. tech firms are also preparing for a global battle: Chinese tech giants like Alibaba and Tencent have already become juggernauts in payments and investing thanks to their mobile payments apps.”
The sustained growth in FinTech firms across the UK, or indeed most of the planet will come as little surprise to readers. Whether it be UK Challenger banks, Chinese behemoths such as Alibaba, smaller company’s working in payments, customer onboarding or AML, there are now firms challenging or collaborating with banks in nearly every field.
Innovate Finance have highlighted the growth in the UK FinTech sector, stating that investment in Q1 2019 has exceeded $1 billion, a 41% increase from Q4 2018. Natalie Ceeney, Chair of the membership body has followed this up with a blog, writing:
“Financial services are integral to all of our lives. Fintechs that make managing money easier, quicker and simpler could help millions to stay on track financially and avoid problems. Fintechs that enable more people to avoid high-cost credit and spiralling debt could reduce stress and improve well-being. Passion to create better financial services runs through fintech like lettering through a stick of rock.”
The Scotsman newspaper has examined the success of the Scottish FinTech scene, noting some of the exciting developments and companies within it, including The ID Co.
Despite the good news, Chancellor Philip Hammond has warned against complacency in the sector, while noting some of the recent successes that have been seen, including investment, the creation of FinTech bridges with other jurisdictions, the introduction of Open Banking and regulatory sandboxes and ensuring companies have the talent required for growth.
FinTech news in brief:
- Are Brits using the latest technologies in the finance sector? A survey suggests they are wary of using facial recognition and fingerprint ID. Via Finextra.
- Tech ‘for social good’ is a growing force in the UK. Verdict has the latest.
- Mastercard and Harvard Business Review talk FinTech in this new podcast.
- Despite UK growth, global investment into FinTech has stalled. Via FT [paywall].
- Marketing Week has explored some of the strategies used by the newest and popular FinTechs.
The ID Co. News
It has been another busy month for The ID Co. Team as we announced a new tranche of investor funding mid-month. With support from Amadeus Capital Partners, SixThirty and other investors, The ID Co. announced $2m in new funding. The funding will allow the company to ramp up our plans for global growth. Coverage of the news was substantial, including, Open Banking Expo, Invest Edinburgh, FinTech InShorts, Australian Fintech, Insider Group, Scotsman, Digit, Daily Business Group, Angel News, Techround, Fintech Global, Finovate, Pitchbook.... and more!
Our CEO, James Varga, was delighted to meet colleagues and friends on different sides of the planet, as he gave key note addresses to the Canadian Credit Union Annual Conference, FinTech Stage in Milan, Italy, and Open Banking Excellence in London, UK.
His presentation to Open Banking Excellence was recorded and transcribed and can be found here.
The opportunities for financial services are escalating quickly. In this most recent article we examine the top five opportunities for banks in using bank data.
The ID Co. team were delighted with the reception we received on the launch of our first webinar last month, looking at Income Verification, and how it can transform lending practices. You can listen to the full recording here. As such, we have scheduled a new webinar for June 6th at 1400 GMT. This will again be hosted by James Varga, and will examine Open Banking within financial services, and how our core B2B product, DirectID, helps lenders and financial institutions make better informed decisions by having more information about customers. If you can't make it on June 6th, don't worry, subscribe, and a recording will be emailed to you to watch in your own time.