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, fill in the form at the bottom of the page. This month we examine the ramifications of Open Banking, two years after its introduction, a pan-European digital coin offering, and a new look and feel for DirectID.
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The debate is far from settled. Dependent on your standpoint, Open Banking can be either the panacea to many consumer’s, business’ and banks woes, or we stand on the cusp of disaster as all and sundry consume our financial data. And if we start with bank data, what could be next, our Amazon data? Healthcare data?
As is so often the case, the answer lies somewhere in the middle, somewhat more banal.
As to why we mention this today – last week saw the two-year anniversary of the introduction of Open Banking in the UK. As would befit such an occasion, media and bloggers have been climbing on top of themselves to offer opinion on why Open Banking would either replace sliced bread as the best thing ever to be introduced, or worse than Adam Neumann becoming PM.
In City AM, OBIE Trustee, Imran Gulamhuseinwala – no stranger to these pages – writes on how Open Banking has surpassed one million customers. Rather than the volume of transactions or people using the tech that is significant however, is the impact that is being felt as a result.
Open Banking, perhaps for the first time, is truly putting consumers in control of their finance. Gulamhuseinwala writes:
In the future, products such as savings, mortgages, insurance and pensions could have their Open Banking moment under the broader banner of 'Open Finance'.
Imagine if customers could see all their financial relationships in one place and use that information to make better decisions — automatically seeing what mortgage they could afford, switching to the best value savings account or insurance product, and gaining a holistic perspective on their retirement planning.
This technology could bring the power of bespoke financial advice (usually reserved for the very wealthy) to all banking customers.
Finextra have also taken the opportunity of the two-year anniversary to provide an over-arching timeline of the last 24 months, pointing out some of the key developments that have taken place in this period.
Lined up against this is news reported in FS Tech that a majority of compliance professionals view Open Banking as a security threat. In a survey undertaken by FinTech Connect, 68% said that Open Banking was a potential security threat. In the same survey, AI scored 64% and crypto, 48%.
In a similar vein, a survey from the Federation of Small Business (FSB) has found that 65% of members would not use Open Banking due to the implied security risks.
FSB National Chairman Mike Cherry said:
We’re two years on from the introduction of Open Banking but very few small firms have reaped any benefit from it. We’ve always said that – done right – the benefits of Open Banking will be huge. Giving small businesses the ability to integrate cashflow, invoice, payroll, utilities and tax data in one place means giving them the ability to identify new efficiencies. And by sharing that big picture with trusted experts, gains should be amplified.
Best of the rest in Open Banking:
💥 How can Open Banking assist in the fight against mortgage fraud? Mortgage Finance Gazette discuss.
💥 Commentators give their opinions on what will transpire within Open Banking through 2020. Predictions include optimised customer experience, the growing influence of AI, and a growth in the volume of people using Open Banking, as well as the number of different use cases.
💥 A great new use case for Open Banking continues to garner attention. Edinburgh based Sustainably are using Open Banking to make round-up deposits to charitable causes. New via the Herald.
💥 Can Open Banking help young people renting property to prove their identity, past rental payments and income? Property Reporter is optimistic about its impact.
Open Banking Abroad
We have seen no let-up in the global interest in Open Banking from across the globe. As the volume of use-cases continues to proliferate, understanding of how Open Banking can support both consumers and business grows in tandem. This week, we have a run-down of the top articles from across the globe, including the US, Australia and Canada.
📊 American Banker caught our attention this week. The article paints a picture of the problems that US banks may have should Open Banking becomes the norm in the US. Outlining such issues as cyberattacks, fraud, money laundering, and reliance on third parties, the authors clearly feel there are substantial pitfalls to overcome for Open Banking to take off in the United States.
📊 By contrast to their friends across the border, the attitude of most Canadians seems to be wholly positive for the introduction of Open Banking. In the Globe & Mail, an opinion piece from the CEO’s of two tech companies give their views as to why Open Banking must be introduced within Canada, and why the Canadian Government must give it more support.
📊 The Australian Government has pushed back the launch of Open Banking from February until July to give time for new testing, amid fears of security failures write Finextra. Mortgage and personal loan data will be available through Open Banking from November.
✅ As we begin the new decade, a number of publications have sought to print their verdicts on how the 2020’s will pan out. Finextra and Forbes have both taken on the challenge of putting together predications for the next 12 months. Forbes focus their attention on how banks will respond to what remains a challenging market, such as by increasing profits as well as revenue, increased M&A activity, and prospecting on how Open Banking will impact banks and consumers alike.
In Finextra Mike Mayo of Wells Fargo said of the next decade:
Technology is better-enabled for banks than ever before and banks are more receptive to using technology than ever before. Tech is the enabler that will take banks on a multi-year trend of improving efficiency and delivering better returns with a lower-risk profile.
He further predicts that shareholders will see an unprecedented return on investments as the capital spent on new tech starts to pay off.
✅ The danger of reliance on Credit Reference Agencies (CRAs) has been highlighted in the FT [paywall] this month. Writer Patrick Jenkins notes many flaws with their use, including the fact that they are;
...essentially backward-looking methodologies. That was painfully evident in the financial crisis and has been demonstrated in a string of idiosyncratic company blow-ups, from Parmalat to Steinhoff, that the agencies were slow to spot. This approach also makes ratings pro-cyclical when things do go wrong.
CRAs failed to protect markets during the last financial crash and there is no evidence that they have altered practices to ensure that there is no repeat of 2008.
✅ While we have been relatively negative on the future prospects of Facebook’s Libra programme (including news this week that Vodafone has been the most recent participant to quit the initiative), the FT [paywall] and Reuters have reported European nations are considering the establishment of a digital coin. Research from the European Central Bank has suggested that the Facebook coin stimulated a demand from consumers, and the ECB are now examining how to meet that demand.
Benoît Cœuré of the Bank for International Settlements to examine central bank-issued digital currencies, said:
A digital currency of this sort could take a variety of forms, the benefits and costs of which the ECB and other central banks are currently investigating, being mindful of their broader consequences on financial intermediation.
📲 In similar good news for UK FinTech firms, the FT [paywall] and ITV News report that investment in UK based FinTech’s has jumped 44% on 2018 figures. London continues to outperform other European capitals despite political uncertainty over the last few years. in 2019, the UK created eight unicorns – companies worth over one billion US dollars.
📲 Amazon, as one of the most innovative firms on the planet, are looking to create another first, as they seek to “turn your hand into a credit card”. The tech giant has submitted patents for a "non-contact biometric identification system" according to Finextra, Geekwire, Biometric Update, WSJ and CNBC which will attach to the palm of the hand. This will allow the user to make payments with a simple wave of the hand. Amazon are reported to be working with Visa on the project.
The DirectID team were ecstatic to release the new website and brand this week. The new website, at direct.id reflects our new positioning as DirectID, replete with new visuals, branding and messaging.
🖥 Read the press release here
🖥 Explore the new website here
As we launch a new year and new decade, we’re also committed to bringing you the freshest and most relevant content on the web. Check out our new articles published since Christmas:
Following the success of our podcast, hosted in conjunction with the Lending Standards Board, we were delighted to welcome back this week to Edinburgh, Harry Hughes, Senior Insights Manager at the LSB. Harry and the DirectID team once again hit the mics as we completed the next podcast, due for release w/c 3rd February.
Harry Hughes of the LSB and James Varga of DirectID
🎙 Listen to our past podcast on the Future of Lending with James Varga, CEO of DirectID and Harry Hughes, Senior Insights Manager at the LSB.
The feedback we received on our webinar series was far more than we expected – and wholly positive! As a result, it is with great delight that a new series of webinars will commence on Feb 4th. In this webinar, we’ll be exploring the collections process. At this time, we understand that it is cumbersome, lengthy and inefficient. Can bank data and Open Banking remove the inefficiencies the process?
🎥 Registration for the webinar will open this week – watch this space!
🎥 Take the opportunity between now and Feb 4th to catch up on our past series of webinars. See them all here.
🤝 Current customers will soon be hearing from the newest member of DirectID’s Customer Success team. Debora Crimella joined as Customer Success Lead at the end of December and brings a wealth of experience in account management and customer comms. She looks forward to speaking with and meeting all current and future DirectID customers!