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 week we cover the launch of the Fingleton Report into Open Banking, delays to the launch of Strong Customer Authentication, and the growth and positive development of FinTech in the UK.
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We commenced the Frictionless Finance Report last time round with news of a new report opining the opportunities that Open Banking could bring to the UK economy. Well, the headline news this week is the publication of a further report into Open Banking...
The Fingleton report, prepared in conjunction with the Open Data Institute (ODI) on behalf of the Open Banking Implementation Entity (OBIE) has focused its energy into the Open Banking ecosystem, examining how consumers could be better served by the new technology.
The paper has also looked at some of the shortcomings found within Open Banking and suggested improvements that could further solidify its use. These include making improvements to payments capabilities and refund functionality. Further recommendations include widening the scope of Open Banking to include savings accounts, mortgages, pensions and insurance. This has been extrapolated on by Sam Bowman, Principal at Fingleton’s, in an article in City AM.
Using the Open Banking example could lead to a transition in the UK economy, to “Open Finance”, a proposition that the FCA is looking to explore through 2019.
Trustee of the OBIE, Imran Gulamhuseinwala, said:
“This report clearly demonstrates how far the Open Banking initiative has progressed, and the potential that exists to help create a banking market that better serves consumers and small businesses. Nonetheless, PSD2 is not a complete solution and we need to further develop the Standards if Open Banking is to fully meet its objectives. As the report points out, there is a pressing need to address refunds, Premium APIs and Open Finance.”
Report author, John Fingleton, CEO of Fingleton, followed:
“Open Banking is the first attempt by competition authorities to use technology to rebalance complex markets towards consumers. While great progress has been made so far, more is needed to guarantee that it takes off with consumers and business users. This matters for more than just banking: making a success of it here gives us a model for similar steps in other markets where customer inactivity or loyalty can leave people worse off."
The full report, titled ‘Open Banking, Preparing for lift-off', can be found here. Further coverage, including an article from Sam Bowman can be found in Reaction. Additional coverage can be found in Finextra, FS Tech and P2P Finance News. The OBIE have also pushed out a press release.
Nesta open-up challenge
What both the Fingleton Report and the ‘Consumer Priorities for Open Banking’ report that we featured in last month’s report highlight, is that opportunity exists for enterprising firms. For businesses of all sizes, this opportunity has been made significantly more accessible by the recent news that Nesta is to run its “Open Up” challenge offering up to £1.5m in funding for those with innovative solutions in the field of Open Banking.
The prize money has been ear marked for solutions that help consumers to better manage their finances. Highlighting the need for such innovation, a survey run by Nesta has found that 29% of people regularly run out of money at the end of a month. Extrapolated across the country, this suggests up to 15m individuals in the UK are struggling to manage their money.
The 12 winners of the 2018 cohort included Funding Circle, Funding Options, Coconut and Akoni.
Delay to SCA
As part of the implementation of PSD2, we were soon to see the introduction of Strong Customer Authentication (SCA). Now in the face of protests from retailers and financial institutions that they are not adequately prepared for its introduction, the FCA has announced that it is to be delayed for up to 18 months.
SCA would see two-factor authentication (2FA) introduced for payments of over EUR 30 for payments made online and in-store. The system was to be introduced to counter the rising threat of payment fraud. “Card not present” fraud was the most prevalent form of payment fraud in the UK last year.
Jonathan Davidson, from the Financial Conduct Authority (FCA), said:
"The FCA has been working with the industry to put in place stronger means of ensuring that anyone seeking to make payments is not a fraudster. While these measures will reduce fraud, we want to make sure that they won't cause material disruption to consumers themselves, so we have agreed a phased plan for their timely introduction."
Andrew Cregan, Payments Policy Advisor at the British Retail Consortium, added:
“The decision by the FCA avoids a payments cliff-edge, whereby 25-30% of e-commerce transactions made online after 14th September would have been at risk of failing as a result of the new laws. The 18 month, phased implementation of Strong Customer Authentication should allow retailers and banks time to put in place the necessary technical fixes required, and minimise any disruption in online transactions.”
There has been a wealth of commentary on the subject. Retailers, concerned about a jump in the volume of declined transactions are pleased, while those calling for greater security in the online world are disappointed – particularly at the long scope of the deadline. Coverage can be found in BBC, Internet Retailing, Computer Business Review, telemedia online and IT Pro.
Further news in Open Banking
- Clydesdale & Yorkshire Bank have penned a deal to bring GoCompare’s services to their “B” App using Open Banking. Via Scotsman.
- The use of Open Banking in the lending sector can bring distinct advantages such as Income Verification, widening the applicant pool and better customer experience write Nordigen.
- Could Open Banking revolutionise the charitable sector? That is the question posed by Third Sector News.
Open Banking Abroad
There has been a plethora of news emanating from all corners of the globe over the last month. Perhaps unsurprisingly, following the introduction of Open Banking in Australia, there has been much discussion on its potential impact and use-cases. We also, however, take a whistle-stop tour of Canada and the United States as the potential of Open Banking spreads across the planet.
At the beginning of August, we saw the Consumer Data Rights legislation passed by the Australian parliament. Assuming acquiescence is granted by the financial watchdog, the Australian Competition & Consumer Commission, it will come into force at the end of the month. Preparations are already underway for the next part of the legislation, scheduled for February 2020. This will see consumers given further access and rights over their personal data. Australian Prime Minister, Scott Morrison, said:
“The laws give consumers more control over their data which will help with the development of better and more convenient products and services that are customised to individuals’ needs. Open Banking will also give consumers and small businesses the power to require banks to provide safe and secure access to that information to trusted third parties so that these parties can use the latest technology to provide consumers the tools to make more informed choices as to how they spend their money.”
Separately, consumer groups have called for a greater degree of education from Government following the roll-out.
Poli Konstantinidis, Experian A/NZ executive GM of credit services and decision analytics, said:
“With the introduction of any new banking initiative, the success very much relies on consumer understanding, for them to be able to access and reap the full benefits. This is something that should be done via government and industry investment to ensure that open banking is not only adopted quickly, but implemented effectively. It needs to be a collaborative approach for the innovation to see success.”
Across the Pacific Ocean, the Canadian Senate Committee on banking has published its report into Open Banking. Titled “Open Banking: What it Means for You”, the report calls for safeguards on consumers data and enhanced options in consumers financial choice of products. In the short-term, the report further calls for the creation of an oversight body to ensure implementation runs smoothly. The full report can be found on the website of the Canadian Senate.
A challenge that must be overcome in the United States is for myriad regulatory bodies to come together and agree on what the framework for Open Banking will look like. Banking Exchange have examined frameworks from a number of different regions, including the UK, Canada and Australia to determine what lessons Americans can learn and apply in their own jurisdiction.
What could have potentially been a quiet summer for the major finance houses has been punctured by the news that Capital One has had its systems breached, and up to 100m American’s personal details stolen. 6m Canadian users have also been involved. Around 140,000 individual’s data included account balances and social security numbers. This latest breach in security is in a long line of major companies that have either inadvertently lost, or have had their security breached. The FBI have a woman in custody in conjunction with the crime.
In better news for financial service providers, a further £40m has been distributed from the Banking Competition Remedies Pool. The fund was set up in the wake up of the bail out of RBS to promote competition in the market. Four companies will each receive £10m each. They are, Atom Bank, iwoca, Modulr Finance and Currencycloud.
Further News in Finance
- With increasing numbers of banking customers rarely, or never, stepping foot in a bank branch, how can banks profit from the growing volume of digital only customers? This question is posed by Alan McIntyre in Forbes.
- The FCA’s Andrew Bailey has warned retail customers off risky investment products that can be found online.
- The power of AI will be such that it will have the capacity to irredeemably alter the banking sector write Bobsguide.
The importance of FinTech in the way that we conduct our daily lives has this week been noted by a number of prominent articles. As the volume and size of FinTech companies continues to grow, we are also witnessing elevated levels of funding, and with that M&A activity in the sector.
Forbes has highlighted how FinTech applications have been subsumed into our everyday lives, in some cases almost unnoticed, as the applications are so prevalent. FinTech is also key to enabling the work of many larger applications, writing;
“The truth is that most of the companies that rely on fintech collaborations and integrations do it for the simple fact that it allows them to focus on their strategy, which in turn helps their ability to scale — in some cases exponentially.”
A second Forbes article highlights the importance of FinTech through the example of the rise in Challenger banks. As we know, banks such as Monzo, Starling and Revolut continue to build large customer bases, with some also launching in foreign jurisdiction such as the US. The author argues that in many instances, the best solution for traditional banks is to capitalise on FinTech companies agility and tech mindset and to enter into partnership agreements.
If we are looking for examples of how customer-centric and adaptive the Challenger banks can be, then evidence can be found in the fact that Monzo and Starling have come out on top of a new poll on the best mobile banking apps. Monzo polled 78%, Starling 70%, with the best of the rest – Barclays, polling 58%.
Johanna Noble, money editor at MoneySavingExpert.com, said:
"It's no surprise that two app-based banks came out top for their mobile offerings, as they rely on their apps for their customers to use. With more and more of us banking on our phones, it's good to see that some of the big players are catching up, though some clearly have a way to go before theirs are as good as their rivals' apps.”
And their dedication to customer-centricty can be further found in news this week that Starling Bank has signed a partnership agreement with SumUp to provide their small business customers access to faster payments. Small businesses can traditionally wait 2-4 days for payments to clear into their accounts.
Indeed, it could be that FinTech will be one of the key drivers of change well into the future. That’s the view of Stuart Jackson of Regency Analysis, who argues in Finextra, that they often hold a social mission and work in developing markets, meaning they can be a true force for good. This has been supported by an article from Schroders, who highlight that challenges facing traditional high-street banks has offered FinTech’s the opportunity to become the new norm in our banking habits. Schroders also highlight the work that many companies are doing in developing markets to bring about financial inclusion.
This work all requires the support of industry and stakeholders in order to effect change. To that end, Nationwide is opening up a digital innovation centre in London with the creation of 750 jobs.
Joe Garner, CEO of Nationwide Building Society, said:
“We now have over four million digitally active members, and that number is growing all the time as each week and month passes. All of our market analysis demonstrated the new location is the best place to attract industry-leading talent within the fintech capital of the world. With growing demand for our services, this is about recruiting skills and experience into Nationwide, alongside developing talent from within our current workforce, so that we have the broad range of skills needed to deliver the Society’s digital and data transformation strategy.”
But the work of FinTech companies has certainly not gone unnoticed. New research from Accenture has shown that investment into UK FinTech companies (such as The ID Co.) has grown to over $2 billion in the first six months of 2019. This is double the volume of the first six months of 2018. Accenture also pose a warning, stating that the risks of Brexit, the US-Sino trade war, and possibility of an oncoming recession could all dampen figures in the near future.
M&A activity in the sector has also peaked over the first six months of 2019 according to research from consultancy, Hampleton Partners. Worldwide activity surpassed $120 billion, as three “mega-deals” totalling over $87 billion drove the figure northwards.
Jonathan Simnett, director and FinTech specialist, Hampleton Partners, said:
“The fintech M&A market is white-hot in Europe and North America. Financial businesses and institutions are increasingly open to adopting large-scale fintech in transaction processing or enterprise financial software, and as the financial services industry re-structures, competition for game-changing assets is increasing.”
The ID Co. News
As readers to these pages will be able to attest, The ID Co. is committed to delivering the most innovative and impactful Open Banking platform on the market. In this recent post from our Marketing team, we outline how we plan to continue adding global coverage to our DirectID platform.
How have banking and finance applications developed to keep up with increased consumer demand? That’s the question asked in our article “How Tech is Revolutionising Banking Solutions”
As autumn leaves begin to show their presence on the trees outside The ID Co. offices, that can signal only one thing – conference season is back!
The ID Co. will be present at many of the banking and finance events over the next few months. We are also delighted to be hosting two of our own that we are very excited about.
On Friday 13th September, we are hosting an event at our Edinburgh offices to usher in the new era of PSD2. With a host of top-notch speakers shortly to be announced, this is an evening of food & drink and one not to be missed for anyone involved in technology, banking & finance and Open Banking. You can find, all you need to know, on our website.
10 days later, we’ll be in London (Monday 23rd September) to mark the Sibos Blockchain & Technology conference with a drinks reception at the unparalleled Good Hotel London, a mere 10 minute walk from the Excel conference venue. Titled “Leveraging Data in the Financial Centre”, this will again see some of the foremost speakers in the technology and Open Banking scene present their thoughts to a select audience. All the details can be found online.
We’re delighted to also share the news that The ID Co. have been nominated as finalists in the Credit & Collections Awards in the Affordability and Assessment category. Our CEO, James Varga is also a finalist in the Scottish Financial Technology Awards for Evangelist of the year.
"I am thrilled to be nominated alongside such prestigious names as Gavin Littlejohn, Tynah Matembe and Stephen Ingledew. I am all too familiar with the work of each of them, and the enormous contribution they have made to FinTech and technology in Scotland and beyond. To be on the same platform as them is a real honour."
You can also find James speaking at the Scottish FinTech Festival (12th September), Innovate Finance & Revolut event (19th September) and Intelligent InsureTECH (14th October)
Anything we missed? What was your top stories for the month of August? All feedback is warmly received: firstname.lastname@example.org