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 impact of Open Banking in the payments sector, the rise and fall of Facebook's Libra, and ask whether North America is the next place for Open Banking to make its mark.
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The evolution of the payments industry has devoured significant column inches of late, as technology moves faster than either consumers or regulators. As we discussed ourselves earlier this year, Open Banking could prove to be a vehicle from which the payments industry can begin offering the speed, reliability and ease of access that is craved by bank customers, at a cost that is more reflective of that expected.
We have witnessed several new articles of late all exploring how Open Banking can begin to support the industry. Growth Business, Raconteur, the Financial Brand and pymnts.com all explore this theme – from a variety of viewpoints.
Both Growth Business and Raconteur have focused their attention on the issue of late payments. This has considerable negative impacts, for business large and small. Indeed, late payments cost the UK economy in the region of £2.5 billion and puts 50,000 firms out of business each year.
Could Open Banking provide the remedy that is therefore required? This is indeed what is offered up, with Nick Raper in Growth Business writing:
“Open banking-based payments are expected to have a marked impact on the way we pay, both in the online and physical world. In fact, they are likely to displace payments currently made using cards. It is estimated by analysts that open-banking payments will soon account for 29pc of all e-commerce spending.”
Raconteur also, cite the possibility that Open Banking will provide SMEs with the ability to shop around for new solutions to cash flow issues, eliminate card fees, make real-time cash balances feasible, and improve access to short-term finance.
With more of a focus towards the US, the Financial Brand also, however, illustrate the payments industry has become more complex through new innovation, rising expectations from consumers, and the emergence of big tech. Although they point out that Open Banking has been slow to reach mass adoption in the UK and other geographies, they recognise Open Banking and the rise and importance of APIs as a balm to some of the sticking points found within the industry.
Sarah Adams of First American Payments Systems, says to pymnts.com, of banks:
“learning how to leverage the new funding options, payment apps and terminal technology — moving forward — will be key. By doing so, faster funding can become reality without the incremental fees and reconciliation challenges to merchants when the payment stays within the bank’s ecosystem.”
There has been a wealth of coverage of the Sibos conference which took place in London in September. One of the largest technology and finance conferences of its kind, this year’s event attracted 11,500 attendees and 200 exhibitors.
Sibos is well known for highlighting trends, and showcasing of new innovation – so it came as little surprise to see Open Banking feature heavily. FS Tech, Finextra and FinTech Futures all cover the top Open Banking news from the event.
The theme that came out of several of the panel discussions on the topic was that change is here and will be for the foreseeable future. As a result, financial service companies that do not embrace FinTech, APIs and Open Banking face a very real danger of being left in the shadows. Against that, some banking executives also highlighted the difficulties that banks face, with emerging threats from big tech, siloed data and legacy operating systems.
Of particular note was a remark from Fiona van Echelpoel, deputy director general of the director for general market infrastructure and payments at the European Central Bank (ECB), who said that a working group had been created to examine what might follow PSD2. This has, at this time, been suspended until such time that banks have fully realised the technical requirements of PSD3.
Top quote of the event comes from Lisa Robins, global head of transaction banking at Standard Chartered, who said:
“When collaborating with fintechs, banks can develop multiple APIs and offer a frictionless experience on one curated platform that manages procurement and financing, maintaining value as a trusted supplier. In the past, we were providers, now we are curators, and this has only been possible through API mashups.”
We’re always looking for new use-cases or developments in Open Banking on these pages, and this week, we highlight a recent splurge of activity and interest from brokerages in how Open Banking might help their businesses.
Both the articles that we feature, from Mortgage Introducer, and Bridging and Commercial, note that the first priority for all brokers should be to educate themselves in how Open Banking works in order that they can introduce and recommend it to their clients. Both highlight that Open Banking offers distinct advantages to brokers as it opens up the volume and value of potential options open to their clients. Key for brokers in advising their clients on Open Banking, they write, will be the ability to allay fears over security
Nesta Open Up 2020 Challenge
A total of 107 firms have applied for Nesta’s 2020 Open Up Challenge. The competition is open to FinTech’s who use the power of Open Banking to design applications that help improve people’s lives. The winners of the competition will receive a slice of the £1.5m prize fund.
Imran Gulamhuseinwala, trustee of the OBIE, said:
“We have been extremely encouraged by the high standard of the applicants to Open Up 2020. The entries not only reinforce the UK’s position as the leading fintech centre of the world, but also showcase our innovation in utilising open banking technology to help consumers make their money work harder.”
Open Banking Reports
We have our usual round up of reports and surveys to get through this week. In one sentence each:
- A Trend Micro report notes that vulnerabilities in APIs could lead to Open Banking being a backdoor for attack by cybercriminals.
- Banks are yet to see Open Banking as an opportunity, merely going as far as compelled by regulators, state Capgemini in their World Payments Report 2019.
- Mulesoft surveyed 9,000 of their customers for their Customer Experience and the Connectivity Chasm report, and noted that Open Banking has become far more prevalent, with young people particularly, far more willing to share their bank details.
Danny Healy, financial technology evangelist, MuleSoft, said:
“...Many banks have yet to fully embrace the opportunities that are available to them. To maximise the potential of open banking and meet the demand for better digital experiences, banks must build an application network using APIs to collaborate with third parties, unlock siloed customer data and innovate faster.”
Open Banking Trends
As we continue to see from virtually every source, Open Banking continues to grow at a steady pace. As well as customer adoption, advances have been made in API quality, and new examples of how Open Banking can support traditional finance capabilities continue to be made.
In the last week, Imran Gulamhuseinwala, Trustee of the Open Banking Implementation Entity (OBIE) has indicated that the number of UK consumers who are using Open Banking features with the big nine banks is in the “hundreds of thousands”. The OBIE is due to release official figures towards the end of this year.
The reliance on API quality will be key for this number to continue to escalate, with consumer trust critical to the long-term success of Open Banking. A new report by Growth Street, published in p2p Finance News indicates that overall, quality has been improving, but there is still a significant volume of work left to do.
Open Banking Abroad
As Open Banking takes off across the UK, Europe and now, Australia, discussion in the United States has ramped up as to whether it be beneficial for the American public. Our reading this month, has been a ‘yes’, but with qualifications....
- The Financial Brand’s, Bill Streeter, makes the case that Americans want the benefits that Open Banking and APIs can offer, but are very wary of the perceived security implications that accompany it.
- PaymentSource are in broad agreement, but take this argument further, saying that there has been a need for US legislators to tighten up existing legislation in order to keep the public’s data safe. Data privacy continues to be a massive debating point in the US with the rise of the social media and tech giants, and particularly after the Facebook-Cambridge Analytica scandal.
North of the border in Canada, momentum continues to grow, with a powerful message in the Globe & Mail extolling the virtues of Open Banking. Under the title “open banking could be ‘very positive’ for financial advice business”, the article cites advantages to consumers in security when compared to screen scraping; have all their accounts and products in one place; better competition in the market and; accelerated customer onboarding and Know Your Customer (KYC) processes.
As the country prepares for the full implementation of Open Banking next year, news continues to reach us on how it could shake up the Australian banking market. Like the UK, the Australian market is dominated by a small number of players who dominate in current accounts, loans, credit cards and mortgages. The introduction of Open Banking could prove to be a boon for both consumers and small Challenger banks, ready to utilise emerging technology to offer more competitive customer offerings and win market share.
- ABC News explains some of the challenges and gripes that Australian customers have currently, and offers solutions that could be proposed through Open Banking.
- This is extrapolated on by Which-50, which goes on to illustrate how Open Banking could provide the impetus for smaller banks and FinTech’s to go toe-to-toe with the big banks.
“We are in good shape to implement the open banking model by 2020. This model is a major step to break the monopoly of data,” said central bank chief Roberto Campos Neto, as quoted in BNamericas.
While progress continues to be made in implementing Open Banking in Latin America, a new row has sprung up as to whether FinTech’s should be able to access the data without paying for it – something that is opposed by the big banks that have had to pay for the cost for producing APIs.
As new technologies continue in their unabated quest to make existing technologies redundant, one sector that we see consistently come under scrutiny is card and contactless payments. While the use of contactless has been relatively recent in its uptake, there is considerable conversation going on within the sector on how it can be improved.
One particular aspect that has not played out well with consumers is continued fees attached to the use of cards. As the volume of card payments continues to increase year on year, small fees are increasingly adding up to huge profits for card providers. The British Retail Consortium is now calling for a clamp down on such fees, particularly as they have risen 50% in the last year.
Andrew Cregan, policy advisor payments and consumer credit, said:
“With card payments accounting for almost 80% of retail sales, it is vital that the Government takes action to tackle the soaring costs that card companies charge retailers. Without action we will see businesses put under further pressure and it will be consumers who are forced to pay the price.”
The potential vulnerabilities of debit and credit cards are increasingly being exploited by criminals, particularly as 50% of all transactions in the UK now use contactless. However, a recent report has concluded that 63% of consumers are concerned that their card could be used fraudulently. Nearly half of all young people who took part in the survey also said that they would be keen to scrap the £30 limit currently imposed on contactless payments – an interesting juxtaposition with regards to the introduction of Strong Customer Authentication, which has been pushed back to next year.
Best of the rest in finance:
- Wealth manager Vanguard Group has said it will begin using blockchain in its new currency platform.
- When is a bank not a bank? When it’s a data company, writes Yan Wu on Medium.
- 200,000 jobs could be lost to automation, AI, and ‘robots’ say Wells Fargo.
Our FinTech roundup has a distinctly Scottish and UK flavour to it this month as a glut of commentary and opinion reaches our ears emanating from these shores.
From Scotland, Gillian Docherty, CEO of the Data Lab has written in FutureScot on the importance of FinTech to the Scottish economy. Specifically, she cites the importance of the data economy, and the role that data scientists are playing in developing some of the groundbreaking applications that are coming out of Scottish firms as being a key driver for growth.
Also in Scotland:
- JP Morgan are to build a tech centre in Glasgow with the creation of 2,700 workers.
- The inaugural winners of the DIGIT Scottish Financial Tech Awards were announced at a glitzy awards dinner in Edinburgh. The DirectID team were delighted to be in attendance.
In more UK-orientated news, it has been announced that Andrew Jenkins is to become the FinTech envoy to Northern Ireland on behalf of the UK Government. Mr Jenkins is currently Director of Mobility Data and Analytics at Arity. He said:
“With strong government support, close collaboration between big companies and start-ups and a world class workforce, Northern Ireland has the potential to become the best place in the world to start and build a Fintech company.”
While we have written on the growth in investment in UK FinTech firms, a new census from EY and Innovate Finance has highlighted that far more needs to be done to support gender diversity and recruitment more generally. Software engineering, system architecture and development are cited as the most in-demand skillset (ranked first by 52% of firms). FinTech firms, according to the census are also male dominated, representing over 70% of the workforce.
Tom Bull, UK head of fintech at EY, said:
“Persistent issues over talent are a real cause of concern and the UK Government’s talent and skills agenda is welcomed as the sector looks to secure the necessary resources to flourish. Equally, the Census makes it very clear that more needs to be done to try and redress the gender imbalance, which remains a challenge despite the efforts of Government and industry to make fintech more diverse.”
The relationships between financial houses and FinTech companies remain complex, with arguments on both sides of the debate on how close they can ever really become. This month, Raconteur have picked up the baton, and made a strong case for either side. Interestingly, the article notes that Open Banking may have played a part in breaking down barriers due to FinTech’s ability to use data and create insights from it, and banks looking to provide similar experiences for their customers.
Any genuine attempts at “partnerships” is destined to fail writes Ron Shevlin in his regular article in Forbes. While there may be examples of connections, and sales between the two, the lack of cohesive values make genuine partnerships very difficult.
There has been considerable coverage of Facebook’s Libra project in the run up to their first formal gathering to formalise the creation of Libra, which took place on October 14th.
The news for those involved has not been wholly positive. Dominating coverage is the news that several prominent payment providers have dropped out (and presumably – though not clarified - forfeited their $10m buy-in fee.) those to drop out are PayPal, Mastercard, Visa, Stripe, Booking.com and eBay.
Adding to Libra’s issues has been the response from global regulators. There has been numerous calls for a global response to Libra, most prominently from the head of the Monetary Authority of Singapore, Ravi Menon, and the Bank of England’s Mark Carney.
Their response has been issued due to the threat that digital currencies could play in undermining national currency, how it might affect monetary flows and capital management.
The European Commission also has questions to ask of Libra representatives. They too, are concerned on financial stability, money laundering and data privacy. Benoît Coeuré, of the European Central Bank, has warned that “the bar for regulatory approval will be very high” in the EU. We wrote last month on the views of Bruno Le Maire who was scathing in his approach to Libra, and this month, he has written another op-ed, this time in the FT. His views, have if anything, hardened. On whether nation states could adequately respond to the risks posed above, he writes:
"The answer is no, because Libra is asking states to share their monetary sovereignty with private companies. In fragile countries where many don’t have access to a bank account or a stable currency, people could simply stop using the national currency and turn to private currencies instead. Some countries may end up surrendering their monetary sovereignty and control over their economy.”
Separately, the head of JP Morgan, Jamie Dimon, has said that he does not think that Libra will ever happen.
The team at DirectID have been working on a new project of late, and we’re delighted to be able to announce that we have teamed up with our friends at the Lending Standards Board to launch a new podcast!
Titled the Future of Lending, our podcast will seek to examine new technologies that will impact upon consumer lending. One of the reasons firms cite for consumers not engaging, or having concerns about Open Banking, is fears around the use of their data. Are these fears founded and what can the industry and individual firms do to improve consumer confidence in the use of their data and Open Banking? Part 1 is now live, and we're delighted to present it here.
Jimmy McLellan, Digital Marketing at DirectID, said:
"We're acutely conscious of the growth in popularity of podcasts and webinars. It was vital for us that in order to continue to educate and provoke debate to as wide an audience as possible, we needed a partner with real authority.
To that end, we're delighted to have partnered with the Lending Standards Board. Their expertise has proved a real asset in the formation of this podcast, and we look forward to its reception from our customers and stakeholders."
Please do follow on all your favourite streaming services to get notifications on upcoming episode releases. We hope you enjoy, and please do let us know your feedback, and thoughts for any episode topics that you would like to see covered – firstname.lastname@example.org.
We were delighted to work with our new friends at Sifted also on a new article they have produced – also examining the lending sector. Our CEO, James Varga was happy to lend his thoughts on how it might look in the future.
That's all for this month. Do let us know your thoughts on your top reading for the month, and anything you would like to see included in this report for future.