Dr Louise Beaumont works with legislators and regulators to create disruption, with corporates to cope with disruption, and with start-ups to exploit disruption. Her roles include chair of techUK’s Open Banking & Payments Working Group, member of Pay.UK’s End User Advisory Council; and advisor to Yapily, Funding Options and Bottomline.
Got a customer-facing solution which accesses bank account information? Want to stay in business? Want to invest in the Open Banking space? Read on.
Today, there are two ways of connecting to customers’ bank account information: open banking (small letters, also known as screen-scraping) and Open Banking (smartly capitalised, regulation-driven). However, as regulatory inflexion points kick in over the course of this year, the landscape will change. Here, I explore how service providers with customer-facing solutions can ensure they stay in business, as well as looking at investment hot spots.
First, the facts: a number of successful businesses have been built on screen-scraping, which is where you ask your customer to give you their bank login details in return for a service that they value.
Account Technologies, trading as SafetyNet Credit and Tappily, built their business doing just this. They launched in 2012, offering customers who connected their bank account access to a credit facility – in short, an overdraft. Close to 500,000 customers have used Account Technologies’ services, with 100,000 customers active at any time, which makes them one of the biggest third-party providers (TPPs) on the block. And they’re profitable, which makes them somewhat unusual in the fintech firmament.
But they need to move to Open Banking via open APIs, not least because, come mid-September, screen-scraping this data will represent a serious regulatory risk. CEO Rob Ashton is a card-carrying API fan, but says the process is not without its issues: “The idiosyncrasies, availability and performance of the APIs delivered by the CMA9 banks make this a tough process – and, as a fintech, you need to be properly resourced to cope.”
As an industry, maybe we’ll accommodate the idiosyncrasies and maybe the banks will get better with regard to availability and performance, but surely the point of Open Banking is that it’s a great opportunity to enable better financial services for personal and business banking customers? Surely, it provides better security and protection than current methods based on screen-scraping and credential sharing?
Yes – all true, says Chris Michael, who in February joined me as an advisor to Yapily. “However, there are limits to what the regulations allow and require. If banks only deliver the minimum regulatory requirements, then existing third parties may struggle to offer equivalent services to those already in market, and new entrants may not be able to offer the innovative services they have envisaged. So, it is important that the standards and ecosystem evolve to allow account providers and third parties to work together and offer premium services over and above the regulatory minimum.”
Starling Bank have, famously, not implemented the Open API specs. In fact, their APIs pre-date the specifications developed by the Open Banking Implementation Entity and are, in their view, far richer. In fact, they are heralded as best in class by everyone I talk to in the industry.
As Sam Everington, the bank’s lead engineer for Open Banking and payment services, explains: “We don’t connect to any CMA9 banks and we can’t see a use case for doing so. We’ll be a net exporter of data, rather than a net importer.” This neatly encapsulates their value to the TPP market – beautiful data, expertly served.
So, what does this mean for investors? In my view, there are three races to be won.
The first race is the race to be the best bank, and there will be a small number of winners. They will be the banks which provide the very broadest array of highest-performance APIs; serving the richest, most valuable data; enabling the most hyper-personalised, predictive and pre-emptive services to be delivered to consumers and small businesses.
The second race is much more diversified and will have many winners. It’s the race to provide the very best services to the end consumer – and these will be built on the rich data via sophisticated APIs I describe above. We’ll see amazing services being delivered to end customers – services that we couldn’t imagine, didn’t ask for, and won’t be able to live without.
The third race is to build the connective tissue enabling the TPPs to access the banks’ APIs – the smart, clean, high-performance, absolutely compliant and secure technology that powers the TPPs’ services – simply, elegantly and invisibly.
The smartest TPPs will realise that accessing these APIs is a specialist game, best left to the experts. At the moment, I see companies spending ridiculous amounts of scarce resource on building in-house access to the banks’ APIs. Sometimes they only manage to build access to one or two banks, limiting their market. And they often fail to account for the resource required to maintain access. All of these costs dwarf the alternative of being sensible and paying a specialist Open Banking gateway company for their virtuoso service – leaving you free to focus on your raison d’etre: serving your customer.
Smart investors will place their Open Banking bets in these three races.