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 how Open Banking can dramatically alter the payments landscape, a closer look at the Australian implementation of Open Banking, and how banks are becoming more digital as they seek to counter outside threats.
The Banking Landscape
There is little dispute over how revolutionary Open Banking will become across financial services, and this has been strengthened this week with significant commentaries appearing in Banking Tech and Payments Journal. Both articles illustrate how Open Banking will, in time, go on to change the way that consumers think about loans and credit.
Banking Tech have outlined some of the major benefits that will be felt by both consumers and businesses. Consumers can begin to enjoy such advantages as instant credit when shopping to cover the cost of purchases; while businesses will enjoy the reduction, or perhaps even elimination, of fees; settlement to their main business banking account; and acceptance both in the physical and online world.
Payments Journal have considered consumer pain-points, and ask the question of whether Open Banking could reduce or eliminate these problems. As an example, they cite a recent survey that showed that if consumers were to go overdrawn, they would be happy to accept a loan at a lower rate of interest than pay overdraft charges. With Open Banking this is now a possibility. They write:
“Ultimately, open banking will impact the market for unsecured credit through customer-centricity, via the provision of value-added services like those explored above. Consumers have already experienced this in many other sectors (Uber, Netflix…) and now expect the same from financial services. Open banking enables this.”
Banking on Brokers?
The effects on the mortgage industry are likely to be just as dramatic. Open Banking Expo magazine raise the interesting proposition that banks and building societies could become so slick in their proposition that brokers are crowded out of the market.
Terry Hall, MD of The Online Mortgage Advice Centre, said:
“Brokers will need to demonstrate that they can add value. Most brokers offer advice plus a fulfilment service. Brokers need to justify the value of this advice if digitisation makes it easier for customers to complete the fulfilment part of these transactions themselves.”
Is it possible one of the unexpected ramifications of Open Banking is it could cause a run on smaller banks or lenders?
While we at The ID Co. certainly don’t see this as likely, a new independent report looking into the near collapse of the Cooperative Bank in 2013 conclude this to be a possibility. The report, authored by Mark Zelmer, cites concerns over the opportunity presented by Open Banking and digital banking for investors and depositors to quickly withdraw their money – potentially causing a run on a bank or other lender.
“At the first hint of any problems those third party providers may be highly motivated to move money away (or encourage their deposit clients to do so) from a potentially troubled institution, no matter how strong the deposit insurance scheme or the resolution toolkit, to protect their own reputations.”
The importance of APIs and data within Open Banking cannot be understated, and we are increasingly seeing commentary on their use and value. We have picked out two that both resonated this week, from Market Screener and pymnts.com.
Laura Crozier from Software AG, writing in Market Screener, focuses on banks use of data as a conduit to better customer offerings. As well as being open to the use of APIs – through Open Banking – Crozier calls for big banks to partner with FinTechs to provide best in class products and services. In her view, the threat to banks does not stem from them, but from Silicon Valley.
Is further standardisation of APIs required to ensure that all benefit from them? Pymnts.com suggests that the problem with APIs currently is that they are too disparate. Indeed, it is standardisation that has allowed for the success of technologies such as the mobile phone and laptop. In the future, they write, Open Banking could be tied to a user's device, offering additional security.
A Public Service Announcement
How quickly can banks and other financial providers begin to make use of APIs and Open Banking more generally? Covering a panel discussion from the Netherlands, Bobsguide illustrate how banks have service propositions to go live from 2020 through to 2025. For these new services to flourish however, a series of customer education must be put in place to ensure that the public are comfortable in the use of Open Banking.
Open Banking Abroad
Commentary and opinion coming out of Australia continues to mount as consumers seek information on Open Banking prior to the go-live date. There have been several notable contributions this week, from ICAS and Investor Daily. Chris Sheedy for ICAS gives a good overview of Open Banking, outlining how it will help to put consumers first, and importantly, answering the question of whether the country needs Open Banking. He writes:
“[Open Banking will bring about...] increased competition, portability and transparency to financial services, always with customer outcomes as its focus.
Comparisons of various products and services, which are typically extremely complex and therefore difficult, will become much easier and less confusing. And it will ensure banks present information in a standardised and simple way that enables people to switch accounts with ease, and to better understand their financial position.”
According to new research by Temenos, new technology is now more important than customer demands – the first time that it has come ahead. This has been caused by the proposed introduction of Open Banking and the need to have APIs in place for Australian banks. Banks in Australia still worry about some of the common concerns relating to Open Banking according to Temenos, including data security and public understanding of what Open Banking can bring.
Outwith of Australia, it is likely that the next wholesale adoption of Open Banking will come from one of the Asian states. Business Times Singapore has the pick of the articles focusing on South East Asia, writing that Open Banking can help to resolve financial inclusion, help the low-paid gain access to credit and insurance, and interestingly, improve access to education. They write:
“On an individual level, the ability to facilitate licensed lending has the potential to allow low-income families to make loans to invest in education for their children, which can be a factor to helping them break out of the poverty cycle.”
Tech Wire Asia also has written on the importance of the introduction of Open Banking, giving a strong endorsement of the benefits that it can bring to consumers in Asia. The article was written prior to the ConnecTechAsia 2019 Summit, where Open Banking is expected to feature prominently. OCBC Bank VP, Business Transformation, Dilip Krishnan, said:
“With third-party ecosystem collaborations to compete effectively, open banking is poised to expand the market size through the introduction of personalized offerings on the right channels and with affordable pricing.”
Open Banking, Open APIs and technological change has given us a flurry of articles this week on how banks should respond to the new digital environment. Business Insider, Finextra and Specialist Banking have all offered their own take on what makes a good digital bank, and what this should offer consumers. There is clear agreement that Challengers such as Monzo and Starling have raised the bar when it comes to customer offerings, and it is now up to the incumbents to match this. Moreover - and as we have discussed on multiple occasions - the threat of big tech entering the sector is becoming real. This was shown last month with the launch of the Apple credit card.
To ensure banks don’t lose customers, Specialist Banking write:
“The answer for banks is to ensure that their service provision is simple, accurate and reliable, particularly online, so there is no reason for customers to go elsewhere for bank services. To help deliver this, banks must hold clean, up-to-date data on their customers that supports them in achieving a 360-degree customer view, and in providing a strong personalised experience.”
Finextra focus their attentions on ensuring that where possible, banks offer a streamlined and simplified experience. They state that digital and physical experiences should be “as one”, and to focus attention on “lifestyle banking”. They explain:
“Lifestyle banking also focuses on delivering non-financial experiences to customers that help enhance their life and also embedding banking products and services within these experiences.”
In Business Insider, they consider research which shows that customers are increasingly calling for the ability to conduct their financial affairs on their phone. As such banks need to respond to make as much of their offering as possible available across digital channels, including account opening.
Just this week, we have seen one response from an incumbent bank that provides an indication that they are committed to moving further into the digital realm.
NatWest have launched their digital only offering “Mimo”. The PFM, which uses APIs, AI and Open Banking to help consumers better manage their money by offering insights, examining spending habits, and indicating where savings can be made. Open Banking will help users simply and securely move to better deals and save money.
Mimo Lead, Calvin O’Brien said:
“Our aim for Mimo is that it will help customers have a better overview of their financial life and help them achieve their financial goals from the ease of their own phone. It’s important that the app reflects customers’ needs to be as useful as possible.”
Tech Nation has announced its latest cohort of fifty FinTech’s for 2019. 'Future Fifty' was established in 2013 to help late-stage technology companies scale their business nationally and internationally. Each company will have access to an expert peer group as well as direct access to Government. Ten of the 24 companies on this year's cohort are FinTech’s, illustrating the strength of the sector. Included in this year’s list are Monzo, Starling and Revolut.
127 businesses have been through the programme over the last six years, with some of the biggest names in technology amongst them, including Skyscanner, Deliveroo, Funding Circle and Transferwise. Jeremy Wright, Secretary of State For Digital, Culture, Media and Sport said:
"The UK has a fantastic track record of producing globally successful tech companies and I'm pleased to see another diverse and impressive group of firms in Tech Nation’s 2019 Future Fifty Programme.”
UK online wealth manager, Nutmeg, is seeking to raise around £10m from its own customers in a crowdfunding campaign. Since launching, Nutmeg has grown to hold £1.5 billion in assets, but has struggled to remain profitable. If successful, the money will be used for product development, particularly around ready-made investment portfolios and SIP pensions.
The ID Co. News
The ID Co. Were delighted to join some of the most prestigious UK tech companies in New York over the last week as part of New York FinTech week. Our Chief Commercial Officer, Milko Radotic had a packed agenda as he presented at Barclays Rise and met with financial service firms from across the United States.
As our mission to develop the most comprehensive bank data platform on the market, we were delighted to launch this week our latest offering on income verification. Through our unique and market leading algorithm, lenders and banks can now accurately assess an applicant’s income without the need for paper-based statements. Lenders that have trialled the product have told us it has led to huge savings in operational costs. Speaking to us earlier, The ID Co.’s Product Owner, Helen Stewart said:
“The capabilities we have built in to give a confidence score is unique in the market and has been developed over many months of hard work. The solution has already been highly commended by banks and lenders that have trialled using it.”
Our CEO, James, was delighted to contribute a guest post to Open Banking Expo magazine. You can read the full entry on page 32, here.
Finally, if you're new to Open Banking, do be sure to read our full Open Banking Explained series, covering everything you could want to know on the subject. The posts are: