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 cover all the latest news from Money 2020 Europe, the countdown to September 14th, and continued discussion on the advantages versus perceived pitfalls of Open Banking.
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Summer is already upon us, and before we know it, so will September 14th. As most intrepid readers of these pages will be aware, this is the date that the Second Payment Services Directive goes live throughout Europe. The legislation is sure to have profound changes to businesses across Europe and the UK – regardless of Brexit.
With the date fast approaching we are starting to see a trickle of commentary begin to reach us on what the impacts will be.
FinTech newcomer Tink has surveyed banking executives across Europe to gauge their readiness for the new regulations. As might be expected, there is a mixture of trepidation and excitement at what the new regulations might mean. The headlines of the research that saw 269 bankers interviewed, were:
- 39% see regulations as a threat to their business model
- 56% fear customer loyalty will be diminished
- 61% think that those that do the minimum will lose customers to competitors
- 45% think Open Banking is an opportunity
The message appears to be clear. Embracing the concept, ensuring preparedness and offering customers the best possible propositions are what is required to succeed in the new landscape. Coverage can be found in FS Tech, Verdict and Finextra.
How “open” will Open Banking be under PSD2? Not as open as we might think say Steve Kirsch in pymnts.com. He likens Open Banking to the web, which has been open for twenty years, but could now be closed off as individual banks implement their own APIs.
PaymentSource has provided a handy checklist for banks prior to introduction of PSD2.
As we have iterated on more than one occasion, offering consumers convenience in their financial habits will be key to deciding on who the winners and losers are in the great game of Open Banking. This week, this assertion has been backed up by new research from CREALOGIX. in their poll of consumers, they found that 68% were interested in the offerings provided through Open Banking – particularly around automated payments and account aggregation – but most, were as yet, unable to access these services.
Almost half of consumers said they would be willing to move providers to access these services.
Jo Howes, Commercial Director at CREALOGIX UK, commented:
“Open banking is going to deliver exactly what regulators and fintechs hoped for: a far more competitive playing field. Banking customers, especially Gen-Zs and Millennials, are keen on trying out new features that make their financial lives smarter and more convenient. If they can’t get these features from their current bank, they are just a few taps away from adding an app that can do better. Faced with this competitive threat, established financial brands can’t afford to stand still.”
In a further op-ed in Bobsguide, Ms Howes laments the lack of information consumers have on Open Banking and states it has to date been “more of a word-of-mouth affair than an EU-wide orchestrated PR effort.”
Merchants are also now primed to invest in an Open Banking future with new research undertaken by Censuswide for Nuapay suggesting 89% merchants have assessed the viability of Open Banking, with only 2% believing it will have no impact.
Indeed one of the themes that we have seen in this month’s edition of the Frictionless Finance Report is the split between articles promoting the advantages that Open Banking can bring versus those propagating the difficulties or challenges that high street banks have had in reaping the benefits.
In Specialist Banking, Tiffany Carpenter, Head of Customer Insights, SAS, throws some clarity on the subject, writing:
“Instead of just helping customers make payments or check their balance, a new generation of banking apps could provide users with much more relevant, personalised advice. By comparing individual spending patterns with the behaviour of a wider population of users, they could pinpoint topics that users really care about — reducing utility bills, for example, or paying off a mortgage — and suggest helpful strategies for meeting their financial goals.”
Anabel Perez of NovoPayment was speaking to pymnts.com:
“However, with traditional FIs being traditional FIs (long-standing businesses that have very specific jobs, and have worked over years to win customer trust and loyalty), there is a legitimate concern on their part about so much data sharing — and, potentially, about consumers. Not only that, she said, “but some banks don’t seem to clearly understand what they are trying to do.” To drive home that point, she compared some banks to an ostrich with its head in the sand, avoiding action.”
So is the answer for banks to invest in the services of a FinTech who can build the sort of products that will help to capitalise on Open Banking? That’s the question posed by Raconteur. In their interviews with bank execs and startup founders, they have found range of views on whether the relationship can work, and what is needed to make it a success:
“Anthony Morrow, chief executive of digital financial advice service OpenMoney, says: “Smarter, savvier mainstream banks have woken up to the fact that fintechs could help facilitate a much better service to their customers.”
Open Banking Abroad
While Open Banking is a global theme, recent news development have focused squarely on two countries – Australia and Canada. The two countries dominate the news cycle this month on news of Open Banking from around the world.
In the Canadian Globe & Mail, Will Buckley of Xero states that there are three stakeholder groups that will benefit from the advent of Open Banking; business owners, FinTech’s and financial institutions. He also discourages creation of a mandated Open Banking system as seen in Britain, but towards a slower, market-led approach.
Meanwhile, in the Financial Post the time taken to implement Open Banking is discussed. As well as falling behind other jurisdictions, some commentators worry that in its absence, screen scraping may become the norm for Canadians to access account aggregation services.
Which in Australia has put together a list of benefits for both consumers and businesses as the country prepares for the introduction of Open Banking this summer. News.com has pulled together some of the arguments for and against Open Banking – though recognising that it will go ahead this summer.
Small business financing remains a critically important part of bank’s operations. Businesses looking to expand, hire, build and grow are the lifeblood of the economy, and the way in which they are financed are just as critical.
Are small businesses continuing to use the services of high-street banks, or are they moving towards the potential offered by other lenders, such as in the P2P space? This week, the Financial Brand and the Finanser, Chris Skinner have both picked up on this subject.
In his article, Skinner illustrates the size of the alternative lending market, covering the likes of Funding Circle and Zopa, and looking at how alternative lending, while huge in the UK, has progressed even further abroad. The Financial Brand argue that without updating technologies and systems, big banks are beginning to fall foul of smaller FinTech companies who can offer competitive products with excellent service. Not only that, but in the US at least, Amazon has already entered the market.
“Because PayPal, Amazon, Square and other alternative lenders have access to transaction history of sellers on their platform – and often use that merchant’s sales data instead of a credit score – they can quickly determine the credit worthiness of a small business borrower. Comparably, banks and credit unions usually only have access to a small business’s deposits and bank accounts, unable to see the entire picture of a company’s sales.”
The difficulty that people in the UK face in getting access to cash continues to generate headlines, and this week, new research has shown that millions of Brits have chosen to go cashless, as the prominence of mobile comes to the fore. Covering a UK Finance report, Finextra state that two thirds of us now use online banking, and 48% manage all our finances on a phone. Cash remains second to debit cards for payments.
The FT [paywall] report:
“The number of adults living nearly without cash rose from 2.9m in 2016 to 5.4m in 2018. Young people are leading the trend, with 17 per cent of 25 to 34-year-olds going near-cashless, but a significant proportion of older groups are also turning away from notes and coins, with 7 per cent of over-65s said to be going cashless. The number of cash payments fell by 16 per cent in 2018.”
Separate research from Contis reports that 25% of the population think high-street banks will be dead in just five years. The report illustrates that while big banks have higher levels of trust than younger digital banks, the time they have left to capitalise on this advantage is being sqaundered.
Flavia Alzetta, CEO of Contis, explained:
“The way forward for traditional banks is increasingly in partnership with nimble FinTechs who are not constrained by legacy technology, systems, infrastructure or culture. Open banking has enabled new customer-centric businesses to develop new features and technology, powered by APIs for quick legacy-free integration.”
One of the biggest events in the financial services calendar took place in Amsterdam this month as thousands of attendees made it to Holland for Money 2020 Europe. We were delighted to see Open Banking play such a prominent role in conversations. The calibre of discussion afforded to Open Banking also suggests that it has matured considerably over the last twelve months, with more discussion on how it can be used to the benefit of both banks and consumers, and less on how it should be implemented.
Douwe Lycklama, founding partner of INNOPAY in Finextra;
Also at Money 2020:
“The customer will have more complexity too. 20 years ago, we weren’t using social media, but we all learnt how to do it. Open banking is a new habit that we will learn in the coming decade and ecosystems will develop and create valuable services for individuals and businesses.”
- Pinsent Masons discuss some of the new requirements contained within Strong Customer Authentication (SCA)
- Starling Bank’s Anne Boden gave a presentation on the future of banking.
- Finally, could FinTech’s be looking to partner with big tech in place of the big banks?
Best of the rest in Finance:
- Raconteur have followed on the theme of FinTech disruption by examining how FinTech firms are disrupting the work of incumbent banks
- 72% of financial service firms have fallen foul of criminals within the last year
- The cost of regulatory compliance is having an adverse reaction on banks
- Amazon is to launch a credit card in the US for those with poor credit histories
- Monzo is set to launch in the US
The volume of FinTech deals has now reached proportions that some commentators are beginning to ask whether the bubble will burst at some point in the near future. This very question was asked by Chris Skinner, in his provocatively titled article, “When will the Fintech bubble burst”, as well as Bloomberg, who make use of the balloon and pin metaphor.
There has been celebration of the high volumes of deals done in 2019 as well however; DIGIT has focused on the volume of deals done within Scotland, and looked at what sets Scotland apart for those looking to start a tech company. The Scotsman has examined why Edinburgh is the best place in the UK to work in tech. Business Insider have all the numbers for those wishing to delve into the detail.
Forbes cautiously sit on the fence as to whether the volume of investment is sustainable in the long-term.
Best of the rest in FinTech:
- A new survey reveals that partnering with FinTech's will be the number one business strategy for banks in 2019
- The Australian Government has appointed Jane Hume as the first Minister dedicated to FinTech
- The US and UK have signed a "Financial Innovation Partnership” in a bid to help both countries FInTech companies.
- Uber could be looking to hire as many as 100 engineers in New York as it branches into FinTech
The ID Co. News
As The ID Co. moves into the American market with full-time employees and new office, we were delighted to join a new progressive FinTech movement designed to promote the use of open APIs. The Financial Data Exchange has been set up by some of the biggest banks and FinTech’s in America and will be invaluable as we look to enhance our offering to the US market.
We continue with our recent series looking at how Open Banking can impact upon different sectors. This week we’ve examined the mortgage sector, and explore ten reasons why mortgage providers should be using Open Banking.
Our CEO, James Varga, continues his whistle-stop tour of Europe this week. After giving keynote presentations at CogX in London, and FinTech Stage in Milan, he is at Copenhagen FinTech Week. Later this month he will be judging the latest cohorts for Technation’s FinTech accelerator. Best of luck to everyone who applied!