OPEN BANKING EXPO IDEAS, CONNECTIONS AND DEALS IN OPEN BANKING MAGAZINE LAUNCH PARTNER
Issue 2_Mar/Apr 2019 OPENBANKINGEXPO.COM
PSD2 GETTING INTO GEAR PAGE
PSD2 FEATURE SPONSOR
THE BIG INTERVIEW
How Open Banking can keep customer data secure
Partnership approach ‘paying off in SME banking’
The CMA’s Bill Roberts on the next 12 months
Citi’s Ireti Samuel-Ogbu talks fast-paced innovation
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One firm innovating through acquisition is Raisin, the panEuropean ﬁntech marketplace, which earlier this month announced the purchase of MHB Bank in Germany.
Welcome to issue two of Open Banking Expo Magazine. A lot has happened since the last issue and the market is showing no signs of letting up. Open Banking Implementation Entity Trustee Imran Gulamhuseinwala OBE talked about the industry ‘revving up’ in terms of product innovation and service provision. We’re seeing concrete evidence of this, with partnerships being struck between fintechs and some of the largest retail banks across Europe. You can find out more in the news pages (pp6-13). The 14th of March came and went. This date, as many of you will be well aware, signalled the deadline for financial institutions to have a dedicated interface (open API) ready for testing by PISPs and AISPs. To a certain extent little was made of this, with the PSD2 deadline 14th of September claiming the most column inches. However, feedback and running commentary in the market suggest institutions have been and will continue to work hard with or without forming a partnership with a third party. One firm innovating through acquisition is Raisin, the pan-European fintech marketplace,
which earlier this month announced the purchase of MHB Bank in Germany. This issue focuses on the everlooming PSD2 deadline in September. The lead feature this month, kindly sponsored by Konsentus, considers what financial institutions are doing to ensure they hit that deadline, whilst retaining perspective on market (and consumer) expectations. From an in-depth interview with Citi’s Ireti Samuel-Ogbu to a marketplace update from the Competition and Markets Authority, and opinion from all corners of the industry, we’re privileged to bring you diversity of thought in the sector. Lastly, we have just announced our event line-up for 2019. We’ll be live in London, Amsterdam and Toronto this year, so turn to page 33 for details. As always, if you would like to be involved in any of our events then please do get in touch – we’d love to hear from you.
Enjoy the issue!
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CONTENTS Issue 2_March/April 2019
26 GETTING INTO GEAR
The latest industry news: Challenger banks land competition cash; Barclays announces payments tie up; and Swift opens registry to corporate members.
The onset of PSD2 made 2018 a pivotal year for European banks, but it won’t be until later this year that the regulations grow some teeth. Will it actually achieve its intended result? Jennifer Turton reports
Insights 22 23 32 42 43
Faith Reynolds Carlos Figueredo, Open Vector James Varga, The ID Co. Wayne Brown, Ernst &Young LLP Irina Tsyganok, Lloyds
18 Preventing fraud
24 View from the Top
in an open world
Bill Roberts The CMA’s Open Banking head forecasts the year ahead.
Throughout history fraudsters have exploited technological advances. How can firms protect customers?
37 SME Focus Jonny Hawkins The Liberis head of data science on exciting prospects for SMEs.
18 31 Konsentus: Q&A
41 Global Spotlight
Brendan Jones on the challenges of PSD2 and the RegTech firm’s plans to help tackle them.
Adédèjì Olowè Open Banking is taking shape across Africa - standards are key.
46 Open Banking & PSD2 Hub Your directory of leading suppliers in the market.
34 Better than banking
50 Soapbox Louise Beaumont Smart investors will place their bets in three Open Banking races. 04 O P E N B A N K I N G E X P O . C O M
Providers are forming partnerships with accountacy software firms and traditional banks to widen the options for SMEs, reports Dippy Singh. March/April 2019
The Big Interview
Now we are in a world where commerce is 24/7 and the expectation is to handle that accordingly.
14 Ireti Samuel-Ogbu Citi’s EMEA payments & receivables head, Treasury & Trade Solutions
Can Citi compete with fintechs when it comes to innovation?
38 The maturity of the UK lending market
Open access to customer risk data should mean better customer choice and safer lending decisions. How will that change the financial landscape in the coming years, asks Joe McGrath.
CO N TR I B U T O R S
E dit orial Joe McGrath Senior Reporter Geordie Clarke Reporter Jenny Turton Reporter Dippy Singh Reporter
Heather Greig-Smith Sub Editor email@example.com Pr od u c t ion & M a r k et in g Christian Gilliham Art Director firstname.lastname@example.org Laura Smith Head of Marketing email@example.com
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OPEN BANKING EXPO IDEAS, CONNECTIONS AND DEALS IN OPEN BANKING MAGAZINE LAUNCH PARTNER
Issue 2_Mar/Apr 2019 OPENBANKINGEXPO.COM
PSD2 GETTING INTO GEAR PAGE
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PSD2 FEATURE SPONSOR
THE BIG INTERVIEW
How Open Banking can keep customer data secure
Partnership approach ‘paying off in SME banking’
CMA’s Head Bill Roberts on the next 12 months
Citi’s Ireti Samuel-Ogbu talks fast-paced innovation
T H E L AT E S T NEWS FROM THE OPEN BANKING ECO-SYSTEM
Challenger banks land £280m for SME focus
hree challenger banks have been awarded grants totalling £280m to improve business banking for small and medium-sized enterprises (SMEs). Metro Bank, Starling and ClearBank have been awarded grants of £120m, £100m and £60m respectively by the RBS Alternative Remedies package. The money is part of a £775m fund backed by the UK Government and overseen by Banking Competition Remedies, the organisation established to stimulate competition in the banking sector. Metro Bank said it will use the money to open new stores in the North by the end of 2025, including cities such as Manchester, Leeds, Sheffield, and Liverpool. It will also bring forward “initiatives to introduce a range of game-changing digital capabilities to help SMEs thrive”. Starling said the funds will accelerate its ability to reshape the SME banking market, further invest in proprietary technology and build out its UK-based customer service and support team. It will launch a web portal for SME
banking customers later this year. Anne Boden, founder and chief executive of Starling Bank, said: “Starling will deliver an advanced fully-digital offering that connects SMEs with the financial solutions they need to thrive. This is the opportunity to bring new technology and a new approach to the sector.” ClearBank and partner Tide will match the award to drive brand awareness, remove friction to switching and develop propositions to entice customers to move from the big four banks. “Our partnership with Tide will provide the SME banking market with an innovative and compelling client proposition, using
our highly-agile technology,” said ClearBank group CEO Charles McManus. “We can start work today. The funding will help Tide accelerate its strategy to capture a significant share of the market, and we plan to match this with further investment of our own,” added Tide CEO Oliver Prill. At the end of February, ClearBank also announced a strategic partnership with fintech firm Oaknorth. The business will use ClearBank’s platform to provide scalable real-time payments and agency banking services. To date, Oaknorth has lent almost £3bn to UK businesses.
We can start work today. The funding will help Tide accelerate its strategy to capture a signiﬁcant share of the market, and we plan to match this with further investment of our own. Oliver Prill, CEO ClearBank
Banks elevate importance of technology in M&A deals Traditional banking groups now consider the acquisition of new technologies as justification for mergers and acquisitions (M&A) and are adjusting how they assess deals, according to research from consultancy Accenture. The report, Riding the Consolidation Wave: Navigating the Next Wave of Consolidation, is based on a survey of global banking institutions from around the world and was published last month. Respondents to the Accenture poll said 62 per cent of banks have a different pre-deal team, or pre-deal 06 O P E N B A N K I N G E X P O . C O M
evaluation criteria, for dealing with digital M&A deals, while 50 per cent said they had alternative valuation and cost models. The report found that the attraction of new technologies is on par with traditional reasons for M&A (such as driving synergies with similar companies or expanding geographic markets). Of those polled, 43 per cent said acquiring new capabilities was the reason to pursue a deal, while 42 per cent cited the appeal of next generation technologies. Accenture added that banks increasingly feel that a chief technology officer (CTO)
or chief information officer (CIO) should be involved in M&A discussions from the start, with 73 per cent of banking c-suite executives agreeing that the CIO should be involved “from the early stages of the M&A lifecycle”. The report’s authors concluded: “The CTO/CIO needs to be at the table from the start, during target screening and due diligence through to integration planning, execution and shaping the value of new digital capabilities that will make a difference to customers, employees and ecosystem partners.” March/April 2019
Barclays announces payments tie-up with SAP Barclays has announced a strategic partnership between its Barclaycard Commercial Payments division and enterprise software firm SAP UK. Barclaycard will integrate its B2B payment product, Precisionpay, into SAP’s global supply chain management platform Ariba. It will be the first product to launch on the Ariba Network, aiming to “combine the perks of card payments for buyers with the cost effectiveness of bank transfers for suppliers”. The Precisionpay Bank Transfer service allows buyers to pay suppliers earlier in the procurement cycle, enabling suppliers to offer prompt payment discounts. Buyers can also opt to have Barclaycard fund their payments, giving them an additional 56 days to pay the balance of the transaction. “In global procurement, payment has always been the part of the process that has created the most friction, so we’re really excited to be partnering with SAP to make
B2B payments as simple and seamless as possible,” said Marc Pettican, managing director of Barclaycard Commercial Payments. The integration between the two systems will complete later in the year. It is hoped that the combination of the two services will allow users to make quicker, easier orders on the Ariba Network. “Barclaycard is a long-term strategic partner for SAP and we’re taking this partnership to the next level by collectively redefining the corporate payments market with a highly innovative platform,” said SAP’s managing director for UK and Ireland, Jens Amail. “The introduction of early settlement flexibility will truly revolutionise the industry and bring so much more value to Barclaycard customers.” SAP Ariba customers that use Precisionpay will be granted access to a data dashboard, which offers further insights into transaction trends, powered by SAP’s Cloud Platform and the SAP Analytics Cloud solution. Both companies hope that their customers will benefit from smarter payment and procurement decisions, without the inconvenience of radically overhauling their existing approaches. Barclaycard processed more than £250 billion of transactions around the world in 2017. The bank says it has prioritised the development of new forms of payment, having previously been at the forefront of developing contactless and mobile payment schemes.
Sbanken casts Nets
QUOTE OF THE MONTH
There are currently 17 TPPs live in the market. Bill Roberts Head of Open Banking, Competition & Markets Authority
Norwegian bank Sbanken has selected payment solutions provider Nets to support its Open Banking journey across the Nordics and Europe. Nets’ single integration solution will give Sbanken access to account information in all banks in Norway and beyond through PSD2 APIs. This will enable Sbanken to develop services for its customers as a third party provider. Christoffer Hernæs, Sbanken chief digital officer, said Nets was selected as the platform provides easy access to the full market through one unified connection.
Chinese e-commerce group chooses Accuity for compliance screening Chinese e-commerce payments firm Skyee has appointed global financial crime group Accuity to improve and streamline its compliance screening. Skyee will use Accuity’s Firco Compliance Link, a service which meets international regulatory standards on customer authentication and financial crime screening. “As a pioneering service provider of cross-border payment solutions, Skyee is committed to eliminating illicit
financial activity,” said commercial officer Ivy Huang. “We have chosen to partner with Accuity due to its comprehensive, intelligent and automated approach, which will speed up our operations and improve our service to customers, while ensuring we are ready for the regulator.” Using the Firco Compliance Link system, Skyee will be monitoring customer accounts for suspicious activity relating to the international rules on money laundering, sanctions and
politically exposed persons. The system will flag when a case requires close inspection, offering an audit trail and an overview of relevant contentious information. Bharath Vellore, managing director of Accuity for the APAC region, said it is increasingly important for fintechs to invest in security. “Fintechs are scaling up rapidly and with their increasing relevance in the financial ecosystem, regulatory compliance becomes absolutely critical.”
Swift opens registry to corporate members
Interbank network Swift is opening its Know Your Customer (KYC) Registry to corporates, allowing them to exchange data and documents with banking partners. From the fourth quarter of 2019, all of Swift’s 2,000 corporate groups will be able to join the KYC Registry, which already includes 5,100 bank members. “Corporate treasurers cite KYC as one of the top three challenges they face in their bank relationships,” said Marie-Charlotte Henseval, head of KYC compliance services at Swift. “This utility already delivers huge benefits to banks, and its extension to corporates will extend them the same advantages, with a standard agreed by the community and a secure platform enabling efficient data sharing.” The Swift KYC Registry is an online portal where financial institutions, such as banks, can exchange KYC due diligence information with their correspondents in a secure, standardised and controlled manner. It also allows banks
to gain access to their correspondents’ KYC profiles, resulting in a more efficient and cost-effective process. Major corporations typically use a range of banks in different jurisdictions around the world and need to exchange information with them to enable KYC checks. This data is frequently held in different locations and can be incomplete or out of date, making the process time-consuming for both the corporates and their banks. Swift said that different jurisdictional requirements and the lack of standardised data across the corporate market on KYC checks compounds inefficiencies in the process. Corporates will be able to upload standard information to the KYC Registry as well exchange relevant documents requested by their banking partners, while banks will gain access to corporates’ information through the same portal that they use for KYC checks. Stephan Ziegler, head of bank relations at Siemens Treasury, said: “The efforts of Siemens to perform KYC-related tasks across the institution is a repetitive, lengthy and cumbersome process.” “With Swift announcing KYC for corporates, we see a well-positioned player moving ahead to answer this need with the full strength of its banking and corporate community.” John Colleemallay, senior director, group treasury and financing, at Dassault Systèmes, said it was a welcome move for all treasurers considering the heavy workload involved in providing the same documentation several times in multiple formats to banking partners.
Modulr strikes deal with accounting giant Sage Accounting technology group Sage has partnered with payments fintech Modulr to help clients improve their management of accounting and payroll payments. The deal means businesses will be able to process salary and supplier payments within Sage accounting and payroll products. Seamus Smith, executive vice president of global payments and banking at Sage, said improving the automated payment options will save users time and improve their corporate administration. “Enabling our SME customers and accountant partners to automate vital financial processes directly from our products... will help them to save time on administrative processes, take control of the flow of money through the software, improve data security and reduce costs,” he said.
08 O P E N B A N K I N G E X P O . C O M
Smith added that Modular was recognised for its “significant industry expertise,” and he saw further potential in the two businesses working together. “Customers and accountants will further benefit from real-time visibility of payments, seamless reconciliation of payment data into Sage’s accounting and payroll products and role-based access controls,” he said. The changes mean customers will be able to create a full audit trail of payment activities. Myles Stephenson, chief executive of Modulr, added: “Our partnership with Sage will enable SMEs to address the significant burden created by existing inefficient payment processes. “Our fully integrated service provides a fast, easy and reliable alternative to processing payments via traditional business and corporate banking.”
METRICS Open Banking Implementation Entity on how account providers (ASPSPs)* Open Banking APIs are performing with key performance metrics. Jan 19 *Account providers (ASPSPs) are currently made up of the following banks, building societies and sub brands: Allied Irish Bank, Barclays, Bank of Ireland, Bank of Scotland, Danske, First Direct, First Trust Bank, Halifax, HSBC, Lloyds Bank, Marks & Spencer, Nationwide, NatWest, Santander, The Royal Bank of Scotland and Ulster Bank.
97.66% Average API availability
Successful API calls (actual)
Average API response time
0.44% Failed API calls
99.54% Successful API calls
Nationwide buys into fintech for business banking boost Nationwide has invested in a fintech business, citing its aim to disrupt business banking by delivering “gamechanging” customer service both on the high street and online. The building society, the world’s largest, has taken a minority stake in 10x Future Technologies. The fintech will work with Nationwide to deliver its first digital platform for business customers, which will be launched towards the end of the year. Joe Garner, chief executive of Nationwide, said: “We believe we can become the gamechanger in the business current account market – just as we have for personal accounts. As a mutual and as a building society we are uniquely focused on our members and meeting their changing needs.” Last year, the society announced it would launch a business current account. It said it wanted to support the UK’s 5.7 million small businesses, from tradespeople and sole traders to owner-managed firms. This latest development will focus on smaller businesses, many of which Nationwide said had been underserved by the five big banks dominating 85 per cent of the market.
The mutual, which has 15 million members, up to a million of whom are business owners, is also bidding for £50m funding from the UK’s Capability and Innovation Fund so it can reach as many small businesses as possible with a fully-fledged proposition. The fund was established to allow better competition in the UK SME business banking market. While acknowledging the growth of digital, Nationwide has maintained steady use of its branches and believes they still play a critical role within communities, both for individuals and small businesses. The building society has been working with 10x since last summer to test its thinking around the account and to scope the requirements for delivery, which aims to deliver “a fantastic digital experience”. The cloud-native platform will enable businesses to access their account and associated products and services through both a mobile app and online banking. Nationwide said 10x’s team of financial services and technology experts had the knowledge and experience to build a new platform that can quickly evolve to deliver better, more personal, tailored experiences for businesses.
We believe we can become the gamechanger in the business current account market – just as we have for personal accounts. As a mutual and as a building society we are uniquely focused on our members and meeting their changing needs. Joe Garner Chief Executive, Nationwide
10 O P E N B A N K I N G E X P O . C O M
Nordea forges ahead with plans on PSD2 The biggest bank in the Nordic Region has launched an Open Banking solution that enables corporate customers to access their accounts and integrate real-time data into their own systems and processes. The tool, named Instant Reporting, gives companies access to their accounts, balances and transactions and allows them to complement their current file-based systems by connecting to the Instant Reporting application programming interface (API). Each time they log on to their system they will access fresh realtime data. It has been launched initially in Sweden and Finland, with plans to roll it out further to Danish and Norwegian markets. It is the first move from Nordea, which has more than 11 million customers in the Nordics, that reaches beyond the regulatory minimums of the Revised Payment Service Directive and, it claims, turns Open Banking into a commerciallyviable product. Gunnar Berger, head of Nordea Open Banking, said the group had been committed to the initiative from the beginning because it could see the potential for creating new products and services that bring value to customers. Berger said: “The exciting thing with our new product, Instant Reporting, is that it gives corporates the chance to directly access their real-time data which will have a big impact on the way they organise their businesses, freeing up valuable time and resources.” March/April 2019
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Business leaders failing to capitalise on fintech
Ant Financial unveils banking platform Ant Financial Services Group and Hoperun Information Technology have created a Distributed Core Banking Platform (DCBP) to help financial institutions shift their business models from transaction to customer-focus. The China-based firms said the DCBP is a “next generation banking product” that aims to help financial institutions tackle digital challenges, including distributed development, financial product management and accounting liquidation. “This is just the first of many collaborations that we plan to form with other talented partners that will enable us to provide better technology solutions to the challenges faced by financial institutions,” said Ant Financial’s vice president Liu Weiguang. The DCBP is the first co-developed integrated solution in Ant Financial’s technology product portfolio. It has successfully completed the pilot stage, running in the core computing systems of several banking partners. This new product builds on the BPASS (Business Platform as a Service) product the company launched in September, covering product management, asset management, capital verification and full-link pressure tests. Chen Bin, president of Hoperun Information Technology, said: “This solution will help empower financial institutions.” To date, several banks have used the services. They include MyBank, which built its distributed cloud-native capabilities, including flexible scaling, agile development and immediate disaster recovery within six months. 12 O P E N B A N K I N G E X P O . C O M
of fintechs see great opportunity via Open Banking Source: EY Open Banking report
growth in MobilePay online transactions YOY Source: Clearhaus
More than a fifth of businesses in the UK believe decision-makers have not grasped the value and opportunities offered by financial technology providers. In a survey of 500 chief executives, chief financial officers and managing directors of large and medium-sized companies, foreign exchange and payments business Centtrip found a gulf between what was available to executives and what they had taken up. The survey found 21 per cent of businesses believe decision makers do not place enough value on technology and 24 per cent do not understand how fintechs could help them. A third of the executives said they had decided not to partner with fintechs due to an existing relationship with their bank. Brian Jamieson, CEO and co-founder of Centtrip, said: “The big banks historically have been burdened with a patchwork of legacy systems and institutional inertia, meaning they are no longer the ones who lead the charge in bringing efficiency to payments and company finance.” Despite some reticence to move away from the traditional high street lenders, more than half of those surveyed (56 per cent) said they thought fintechs offered services that banks could not – highlighting a lack of flexibility by the largest institutions. “Technology changes the way we work and is the key to success in all industries and it is great to see that businesses across the UK are waking up to this,” said Jamieson. Some 54 per cent said fintechs were better at helping businesses reduce costs. In addition, 42 per cent of respondents said they trust fintech companies with their finances more than banks, with only 20 per cent preferring to deal with high-street lenders. However, 22 per cent cited the difficulties of training staff to operate new technology as a key reason for staying away from fintechs. Jamieson said it is crucial businesses of all sizes are equipped with the right tools and resources to maintain a competitive edge. “Multiple sectors and industries are undergoing significant technology and artificial intelligence changes, and if businesses do not keep up, they will be left behind,” he added. The survey identified a difference of opinion between younger and older respondents. Seven in 10 of 18-34-year-olds said they would trust a fintech over a bank to handle their business’s finances in comparison to less than one in ten (nine per cent) of those aged over 55.
Fintechs ‘driving wholesale banking’ Fintechs are increasingly helping financial institutions attain their wholesale banking goals, but the relationship between the smaller firms and large company executives still needs work, a survey has claimed. Most banking executives cite reducing operational costs as the way fintechs enable them to reach these goals, according to 87 per cent of respondents to a survey by ING Bank and venture capital firm Illuminate Financial. Improving regulatory compliance was the second most popular answer (67 per cent) in the survey of 10 banks and 142 fintechs, now in its second year. Luca Zorzino, investment director at Illuminate Financial, said: “Banks recognise that increasing competitive pressures cannot be addressed with legacy technologies and the need to develop products and services that empower customers can only be met by adopting or partnering with emerging vendors.” Zorzino said the venture capital firm, which funds fintech start-ups, was pleased to see engagement between
banks and fintechs improving. However, the survey showed both banks and fintechs recognised the challenges. There were clear differences between banks and fintech responses: 60 per cent of banks said navigating organisational decision-making is a challenge in partnering with a financial institution, an improvement on last year’s 70 per cent. Fintechs, on the other hand, do not share the same sentiment, with 65 per cent saying navigating organisational decision-making is now a greater challenge, up from 46 per cent. Furthermore, 72 per cent of fintechs said it was either very difficult or difficult
to connect with the relevant people in a financial institution, compared to 50 per cent of banks. Just under a third (30 per cent) of fintechs believe that the adoption of new technologies is always or often supported at bank management or board-level, compared to half of banks who reported the same. The survey results were revealed at the launch of ING’s Innovation Lab in London on March 11, 2019. The Lab enables fintechs, ING partners and clients to collaborate on projects to advance technological developments in financial services.
3 October 2019 InterCon�nental London – The O2 In associa�on with
22 APRIL 2019
ENTER HERE emergingpaymentsawards.com The Emerging Payments Awards recognises excellence and innovation in payments, featuring 20 categories @EPAwards
Emerging Payments Awards 13
THE BIG INTERVIEW Ireti Samuel-Ogbu Citi
14 O P E N B A N K I N G E X P O . C O M
Taking back control Fintechs may be in the spotlight when it comes to innovation, but Citi’s Treasury and Trade Solutions boss believes the bank can give them a run for their money. Joe McGrath reports
dvances in technology and service for consumers are raising expectations on the corporate level, driving change in the business environment. Ireti Samuel-Ogbu, Citi’s EMEA payments and receivables head, Treasury and Trade Solutions, sees ‘co-creativity’ and the fast-paced environment in which the change is taking place as important challenges. She explains: “The financial crisis happened in 2008. Soon after that was one of the biggest shifts we have had: the explosion of the internet. It moved from just being about information to being a social network.” Samuel-Ogbu says this change turned the internet from purely an information source to something that facilitated transactions. “Marketplaces and ecosystems were born, with a new focus on clients and client experience.” The Citi treasury boss says technology giants such as Amazon have hugely inﬂuenced the level of expectations people have when it comes to customer service. This has spilt over into the corporate world.
“What you find over time is transference of what we experience individually, to what we will accept in a professional capacity,” she says. “If you experience a great client experience with Uber, for instance, you are going to be less tolerant of old fashioned experiences from banks. “These secular changes, technological shifts, growth of marketplaces and ecosystems, have all facilitated a new way of thinking.” Rapid response The payments industry is fast becoming one of the most dynamic sectors in financial services, propelled by advances in technology and innovations from both large banking institutions and the smaller fintech players. Samuel-Ogbu says that one of the paradoxes with innovation and digitisation is that much of it has been driven by regulators. “Whether it is the real-time payments happening all over the world, payment gateways in the Middle East, or financial market infrastructures combining with mobile wallets in Africa and Pakistan,” she says. ›
Previously, we had cut-oﬀ times, end-of-days and 9-5 when things were being done. Now we are in a world where commerce is 24/7 and the expectation is to handle that accordingly. Treasuries may still be handling these in a timeline of 9-5 but because their clients are buying within a 24/7 timeframe, it means we, as a bank, adopt more of a ‘follow the sun’ [approach] to support our client transactions. Ireti Samuel-Ogbu Citi’s EMEA Payments & Receivables Head, Treasury and Trade Solutions 15
› “For me, one of the biggest challenges is this is happening at pace. To my mind, the increasing pace of regulation and digitisation is one of the biggest changes and challenges.” Another change related to this is client transition to a “world of 24/7”. “Previously, we had cut-off times, end-ofdays and 9-5 when things were being done. Now we are in a world where commerce is 24/7 and the expectation is to handle that accordingly. “Treasuries may still be handling these in a timeline of 9-5 but because their clients are buying within a 24/7 timeframe, it means we, as a bank, adopt more of a ‘follow the sun’ [approach] to support our client transactions.” Disruptive neighbours While Open Banking and PSD2 are making the industry more accessible and improving services, the increased competition from fintech players is causing some concern to the big banks. However, Samuel-Ogbu isn’t concerned, saying banks are responding to the increase in customer expectations. “Today, roughly 10 per cent of global commerce is happening digitally. As our clients move more direct to consumer, they are not working with the traditional aggregation points of the past.” She adds: “They used to work with distributors and import from large providers to get their goods to the final consumer. Now they are going direct to consumer. They are looking for a bank to enable real-time collections.”
DID YOU KNOW
Globally, Citi serve 200 million client accounts and operate in more than 160 countries.
16 O P E N B A N K I N G E X P O . C O M
Satisfying demands A big proportion of Citi’s clients are large-scale multinationals. These organisations have the highest expectations in terms of delivery timescales and innovation. “They want to be able to collect in real time and with a consistent experience across the globe, with as few partners as possible, so they don’t have to use different legal systems and backdrops.” This, according to Samuel-Ogbu, is where Citi is coming in, helping to build a single global interface. “We are leveraging new technology,
and APIs, to connect to all the instant collection capabilities and alternative payment methods like wallets to facilitate e-commerce for our clients,” she says. There is no doubt that greater importance is being placed on technology. Banks have significantly increased their annual IT spend, while consumers are more widely adopting payment services such as ApplePay, Google and other digital wallet applications. She sees PSD2 as a catalyst which encourages banks to act more like fintechs, essentially becoming payments initiation service providers. “Like a fintech, it enables us to collect from bank accounts for our merchant clients through APIs. Banks can start leveraging some of this innovation.” Ultimately, the driving force behind the direction of change and innovation is the client, says Samuel-Ogbu. “There is one clarion call we have at the moment, which encompasses our strategic direction: ‘being the best for our client’,” she says. “Traditionally, you developed a product and presented it to the client. Now, more and more, it is about co-creation, thinking about design principles, clients’ user cases. What makes sense to the client? What is of value to the client? What will improve the client experience, excite them and make a difference? That is a very sharp departure from the past 30 years, which was very much a supermarket approach.” At Citi, fintechs are considered collaborators rather than competition, Samuel-Ogbu explains. “Citi Ventures takes strategic shares in fintechs. We have collaborated with fintechs in areas such as payment risk management and reconciliation. “There is a lot that has been documented in Open Banking on the information aspect. There hasn’t been as much about being at the forefront of enabling collection from bank accounts as an alternative to cards. Our aim is to build a payment network of the future, a network of networks.”■ March/April 2019
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F E AT U R E / F R A U D
Preventing fraud in an open world Throughout history fraudsters have been quick to exploit technological advances. Open Banking is no different. So how can organisations ensure they aren’t opening the door to criminal activity? Jennifer Turton reports
arch 2019 may be the month that will be remembered for the Brexit deadline but, in the world of Open Banking, it is also the point at which banks must have their APIs ready for testing under the second Payment Services Directive (PSD2). A key objective of PSD2 and Open Banking is to make payments and accounts access easier, but alongside this are significant concerns over potential security issues. Mike Haley, managing director at fraud prevention service Cifas, says: “Any new initiatives will be targeted by fraudsters – fraud is the number one growing crime and fraudsters are always looking for the weak points. “They will test the Open Banking environment, and that is something we have seen with other initiatives, testing around the entry points.” Awareness of data security is something that is on everyone’s radar. Research into consumer trust and spending habits conducted by payment security specialists PCI Pal found that almost a third of UK consumers would spend less with brands they perceive to have insecure data practices. In addition, 41 per cent of British 18 O P E N B A N K I N G E X P O . C O M
consumers said they would stop spending with a business or brand forever following a serious data breach. And it isn’t just consumers that harbour these concerns. Lurking fears Research by UK law firm TLT Solicitors found that half of financial services companies are concerned about the increased fraud risk as a result of the larger ‘attack surface’ for hackers. Two thirds of respondents said damage to customer trust and confidence where data is lost or misused is the biggest risk in relation to data sharing under Open Banking – trumping other concerns over potential data loss via third party providers and increased risks and liabilities arising from regulatory obligations. Tim Waller, a partner at TLT, explains: “While fraud is a growing issue across the financial services spectrum, it’s important to remember that Open Banking and PSD2 also bring significant improvements to data security for banking customers. Things like encryption, tokenization and strong customer authentication requirements, for example, offer enhanced protection beyond existing services, like screen-scraping. › March/April 2019
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› Waller says security is very much at the heart of Open Banking implementation. “The UK’s Open Banking Implementation Entity, along with the CMA9 banks and fintechs, has created and agreed API specifications, security profiles, customer experience guidelines and operational guidelines to enable the secure flow of account information and secure payment initiation.” Gary Humphrey, head of product – fraud & ID, for credit reference agency Equifax UK, agrees. “Open Banking provides an opportunity to enhance existing customer journeys by adding one of the strongest levels of customer authentication available,” he says. “New solutions can leverage the consumer’s relationship with a bank, allowing them to authenticate their ID credentials using their online bank account. This can complement existing ID solutions, speed up customer onboarding and mitigate against the risk of fraud.” Haley argues that it is important to not overplay the fraud risks that Open Banking could create. “Security has been very well thought through in the construction of the infrastructure of Open Banking and I’m confident that within the transaction there is security,” he explains. “It may well be that the fraud risk lies at the on-boarding of customers at the third party processor (TPP) – identity fraud has increased over the last 10 years, it is now 50-60 per cent of all instances of fraud that we see at Cifas.” Some believe that fraud detection may be even trickier, should a criminal gang decide to infiltrate the market through what appears to be a legitimate financial institution. Robert Tharle, enterprise fraud expert at financial crime investigation platform NICE Actimize, explains: “It’s perfectly possible we will see either an outright fraudulent TPP fronting themselves as the financial institution, or one that is hacked or socially engineered in some fashion. “This could result in fraudulent payments, account takeover (ACTO) and even more data compromises to facilitate ID theft,” he says. Tharle also says Open Banking could have a negative impact on a financial institution’s ability to undertake 20 O P E N B A N K I N G E X P O . C O M
fraud profiling as more transactions are done through other organisations. “Instead of having full control of the end-to-end journey via their website or app, the financial institutions will only see the customer’s end point (e.g. laptop or mobile device) at one or two points in the journey,” he says. “This makes it much harder to manage as they move from continuous authentication to a point-in-time model.” Prevent and protect The growing fraud risk will, however, see financial institutions increase security and ensure that the Open Banking sphere is more robust than the services currently in place. Marcus Hughes, head of strategic business development at Bottomline Technologies, which handles business payments, says: “PSD2 requires strong customer authentication (SCA) and more robust multi-factor authentication (MFA) techniques, with exemptions only for those that can demonstrate low risk transactions up to 500 euros. “We may see greater segmentation of payment service users, each served by a separately-regulated entity with different levels of security requirement. For example, some Payment Service Providers (PSPs) where overall fraud levels are low, may target lower-risk customers or merchants for a frictionless user experience under the SCA exemptions, while other PSPs may ring-fence higher-risk customers or merchants and apply full MFA.”
Knowing every customer is key to keeping fraud out. What’s more, re-identifying customers after fraudulent activity has been flagged is vital, so that scammers are cut off before they’re able to game the entire ‘open’ system. Rene Hendrikse EMEA Managing Director, Mitek March/April 2019
The European Banking Authority and Financial Conduct Authority have confirmed that, as part of the Regulatory Technical Standards, PSPs must “ensure integrity or confidentiality” of SCA and MFA. With SCA, banks will require every customer to be authenticated by at least two of the following criteria: something they have, something they are, and something only they know. This could include an ID document, a biometric identifier, and a security question, for example.
Rene Hendrikse, EMEA managing director at digital identity verification software provider Mitek, explains: “Regulatory compliance and investment in technology will both be crucial to solving the problem of fraud in an Open Banking landscape. But it’s not as simple as just being on top of regulation or having a strong digital transformation strategy – the two must work in tandem from the very beginning to effectively combat the threat of growing fraud.” Hendrikse says that technology, such as digital identity verification, means that banks can identify every potential customer before they open an account. “Knowing every customer is key to keeping fraud out. What’s more, re-identifying customers after fraudulent activity has been flagged is vital, so that scammers are cut off before they’re able to game the entire ‘open’ system.” Tharle adds: “Open Banking is another vector for social engineering, a way to confuse customers into handing over credentials or data to fraudsters. This certainly muddies the clear message that banks previously sent to customers, which was not to share your bank credentials with anyone. “The full impact may take longer to materialise as the use cases to drive the most transformational change, large volumes of third party-initiated payments, need to be in place for customers to fully adopt Open Banking.”
Learning from the past Financial institutions are benefiting from the rise of ‘Regtech’ – technology developments such as artificial intelligence, machine learning, robotic process automation, and blockchain designed to assist in improving financial crime challenges. According to World Economic Forum report The New Physics of Financial Services – How artificial intelligence is transforming the financial ecosystem, AI strategies and automation processes “ensure they are only using data for the primary purpose for which it was collected and that they are doing this in a responsible and ethical manner”. “Regtech, technology that helps achieve regulatory compliance, will place a more important role than ever before as Open Banking grows,” Hendrikse says. “Investing in Regtech means that financial institutions will be able to put more emphasis on stopping account opening fraud and monitoring for fraudulent activity. He adds: “The latest AI-driven fraud monitoring tools can learn extremely precisely how to detect fraudulent activity before it even happens – this not only benefits banks but also concerned customers. The right technologies mean that banks and financial services firms can keep fraudsters out while keeping the FCA happy – ensuring their own security and adhering to regulation.” Across the financial services industry, institutions are employing multi-factor authentication methods to validate and verify not only users, but also devices used to make those transactions. For Jim Warner, director of operations at fintech Centtrip, 2019 is the year for championing and testing new ideas. “With September set as the PSD2 compliance deadline, no one will want to be left behind. We are already seeing acceleration in the uptake of Open Banking in the UK, Asia, Australia, US and Latin America,” he says. “It is important for financial institutions and fintechs to collaborate to define and to agree on a common set of rules to ensure any disputes or errors that may happen in the future are resolved quickly and efficiently.” ■ 21
Insight Faith Reynolds Independent Consumer Representative for Open Banking Implementation Entity
“The Financial Innovation Lab’s 2019 incubation programme is now firmly under way. This year, their fellows are focusing on the responsible use of data.”
s the year of Open Banking begins, consumer organisations, academics and even the Church are looking at what it means for consumers. I kicked off my January writing and presenting an essay for the Vatican on fintech, competition and vulnerability – levelling the playing field was the central theme. It was fascinating to join a mix of industry leaders and clergy to discuss the opportunities. Early in the year, Money & Mental Health announced a new programme of events with the Financial Conduct Authority. They’ll be looking at how firms can overcome the challenges associated with using financial data to support people with mental health problems. Barclays have launched a related report on consumer attitudes to identifying vulnerability through the use of data. At the University of Pennsylvania, they are using analysis of financial data to spot Alzheimers and other forms of dementia earlier. Nuanced changes in handling money can offer early indicators that something is not right, often before more traditional symptoms manifest. Innovation for Ageing celebrated the finalists of their almost year-long challenge programme at the end of January. The project was set up by the International Longevity Centre and Just Group to identify solutions to vulnerability in later life. Toucan was the fintech finalist. It’s a money management app that simplifies the interface with an easy-to-understand home-screen and options to set up alerts to be sent to someone you trust 22 O P E N B A N K I N G E X P O . C O M
when money is low, or spending is higher than usual. Soon, we hope to be hearing who the winners are of the Open Banking 4 Good initiative. In the meantime, there are a tonne of ‘challenge resources’ on their website offering up insight on consumer issues. Another resource worth looking at is the Money Advice Trust Vulnerability Matters podcasts. They’ve been getting experts together to chat through issues like gambling addiction, suicide prevention, and of course, money. The Financial Innovation Lab’s 2019 incubation programme is now firmly under way. This year, their fellows are focusing on the responsible use of data. Money management app Elifinity and one of the Lab fellows presented at the latest Open Banking Consumer Forum, alongside OpenWrks and Account Technologies. There was a great vibe as social and commercial organisations discussed how best to increase people’s financial resilience. There is real appetite to understand how fintech can help. Not long after the Consumer Forum, TechUK held a roundtable on Tech for Good in the Community considering how best to communicate Open Banking, making sure that the people who stand to gain most from it, hear about products that can help them. Another joint group of consumer and industry reps have published the long-awaited voluntary industry code of good practice to protect people from Authorised Push Payment Scams. It’s an important step forward for consumers but there’s still more work to be done
before it goes live at the end of May. One outstanding question to resolve is what the code means for payment initiation service providers. Ethics and communications were front of mind for fintechs that took part in the Code Collaboration research, looking at the merits of a code of conduct for Open Banking. A roundtable in March fed back from the research and confirmed that a code or trustmark would be useful for firms to help level the playing field and increase consumer trust. Attendees heard from Women Leading in AI about ethics in algorithms, and the Department for Business, Energy and Industrial Strategy (BEIS) shared findings from research with the Behavioural Insights Team on how best to communicate key terms and conditions. Algorithm Impact Assessments were recommended as a useful tool for firms, alongside training teams to understand new technologies. Inclusion Signpost has been launched as a way for providers to get accredited for offering the gold standard in financial inclusion. The aim is to drive the market to meet the specific needs of people experiencing financial exclusion. Together with the comparison tool, Signpost Now, it will show people which products are most suitable for them and rated highest by industry leaders. Time to get Signposted! ■
➽ If you would like to comment on either of these opinion pieces, please email us at: firstname.lastname@example.org March/April 2019
Insight Carlos Figueredo Chief Executive, Open Vector
“While Mexico is leading the way, other nations are seeing the many benefits and opportunities and embarking on Open Banking strategies, primarily with in-country fintech associations.”
hile Open Banking started in the UK as a mandatory step for the nine top banks (CMA9) under the directive of the Competition and Markets Authority (CMA) through the CMA Order, none of us involved in the initial steps of Open Banking could have imagined the global impact that this initiative would have. Countries across the globe are understanding that this initiative is more than just a regulatory requirement. It is a structured way to embrace innovation through three key pillars: collaboration; common data standards; and a strong regulatory framework. There is no better example of this than what is happening across the Americas, primarily in Latin America (LATAM). Mexico is leading the world by undertaking a full revamp of its financial sector, implementing the Mexican Fintech Law. This law is not only about the banking sector; it intends to tackle 20 subsectors with over 2,265 varied financial institutions – a much higher number than the UK CMA9 undertaking. While Mexico will initially not have transactional data as part of its remit (read only data), the fact that it is embarking on the data standardisation of 20 subsectors will launch Mexico to the forefront of Open Banking innovation through the possibility of sector/cross-sector products and services. What makes this country even more impressive is that it has a very strong fintech community from young ‘just out of college’ to highly-experienced teams that are actively participating
in this movement. Additionally, Mexico’s private sector is embracing the endless possibilities for innovation by motivating these fintechs through a number of different channels such as hackathons. Mexico has the potential to be a financial sector hub for the region. Open Vector has delivered phase one of the Mexican Fintech Law and is proud to be part of the conglomerate of experienced firms that were awarded the tender to deliver phase two. While Mexico is leading the way, other nations are seeing the many benefits and opportunities and embarking on Open Banking strategies, primarily with in-country fintech associations. For example, we are working with the Colombia Fintech Association to create an Open Banking roadmap for the country. Colombia benefits from a strong fintech community but also from a financial sector that realises the opportunity is there to make Colombia an attractive country to do business in, reducing past negative history around corruption and drugs. Additionally, FinteChile is preparing to bring Open Banking to Chile after earlier presidential elections. Chile enjoys the benefits of a stable economy and government which makes this country ideal to compete as the South American hub in the financial sector and Open Banking. Having said this, the fintech associations of Argentina, Brazil and Peru are also having discussions about bringing Open Banking to their countries as well. In the north, Canada has taken a major step forward by submitting
a consultation paper on Open Banking to see how individuals and organisations see Open Banking and if there is general interest. While we await results, it would seem very probable that Canada will also see the opportunity that this initiative will bring and join this global movement. In summary, the Americas have woken up to Open Banking. Governments realise the opportunity for social and financial inclusion that this initiative will bring, while fintechs and financial institutions see vast opportunities ahead. We are very excited to be involved across the region and look forward to the opportunities this will bring, not only to fintechs and financial institutions, but to consumers – the reason Open Banking was created. ■
Open Vector helps industries and individual firms undertake API strategies. 23
VIEW FROM THE TOP
Pioneering progress in Open Banking Bill Roberts Head of Open Banking, Competition and Markets Authority
arlier this year, we saw the first anniversary of the launch of Open Banking in the UK. What’s been happening since? During 2018, Account Servicing Payment Service Providers (ASPSPs) rolled out the read/write APIs developed by the Open Banking Implementation Entity (OBIE) together with their customer authentication journeys: the steps that a third party provider’s (TPP’s) customer has to go through to authorise their bank to share data. This allowed consumers and small and medium-sized businesses to, for example, view their accounts through an aggregator’s dashboard or engage ‘sweeping services’ to move money. The roll-out was not without its problems: all the largest ASPSPs except Lloyds missed the original January deadline. Following the CMA issuing legal ‘directions’ by June, all the main brands were there and we watched traffic across the ecosystem grow. The Implementation Trustee (IT), the OBIE, the ASPSPs and the CMA then began a series of initiatives aimed at improving performance. For example, feedback from TPPs showed that some of the authentication journeys were far from frictionless and contained what could be construed as obstacles to use. The OBIE created Customer Experience Guidelines, identifying best practice for ASPSPs, which were then used to craft improvement plans for each. Similarly, platform availability and response time issues had surfaced. Some banks’ Open Banking platforms
suffered a lot of unplanned downtime, were slow to respond or just failed to deliver the information requested by a TPP. The root causes of these technical and performance issues were addressed by the IT and OBIE with the CMA ensuring greater transparency by mandating the publication of ASPSP performance data. The next big step for Open Banking comes this month: consumer journeys that will enable biometric authentication. These journeys will typically take place on a mobile device, with the customer navigating from the TPP’s app to the bank’s. This will enable consumers to authenticate themselves when instructing their bank to share data with a TPP simply and securely, with a thumbprint or through facial recognition. For Open Banking to address the competition problems that the CMA intended it to tackle, the customer experience doesn’t just need to be secure and simple. It also needs to satisfy customer need. So where are we with TPP adoption? There are currently 17 TPPs live in the market with customers, 70 signed up with Open Banking and 200 in the pipeline, including those awaiting approval by the Financial Conduct Authority. You can see a list of who’s joined the ecosystem on the OBIE’s
website, but to summarise: more account information service providers (AISPs) than payment initiation service providers (PISPs) have entered so far. The proportions are changing: some, like SafetyNet Credit, are established players who previously employed screen-scraping; others, like Swoop, are new; and some, mainly aggregation services, are provided by the banks. So far, HSBC, Barclays and Lloyds have launched aggregators in competition to those produced by providers such as Yolt. The incentive is fairly obvious and powerful: if a bank’s customers begin using an aggregator’s dashboard to look at their bank accounts, the bank risks losing its relationship with that customer. While the functionality of the current aggregator products doesn’t currently qualify them as “killer apps”, it is a short step for them to start marketing financial services to customers based on transaction history. There is also no reason why an AISP could not identify potential savings for consumers or businesses outside financial markets. More than a dozen other jurisdictions are now either seriously contemplating or implementing Open Banking. Imitation is the sincerest form of flattery but, as the OBIE will attest, it’s also the pioneers who get the arrows. ■
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The CMA is a government department that works to promote competition for the benefit of consumers, both within and outside the UK.
“So far, HSBC, Barclays and Lloyds have launched aggregators in competition to those produced by providers such as Yolt.” 24 O P E N B A N K I N G E X P O . C O M
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Getting into gear The onset of PSD2 made 2018 a pivotal year for European banks, but it won’t be until later this year that the regulations grow some teeth. Will it achieve its intended result?t?
Jennifer Turton reports
t’s crunch time for European banks as far as Open Banking is concerned. In the months following the introduction of the second European Payments Services Directive (PSD2) in January 2018, there was a sense, in some quarters, that banks felt little incentive to implement more than the bare minimum requirements of the legislation. But with the deadline to comply with the Regulatory Technical Standards (RTS) on 14 September fast approaching, this is set to change. RTS is significant because it requires banks to provide APIs to third-party providers (TPPs) that will allow them to build new products and services, such as payment methods and account aggregation applications. The hope is that this will lead to increased co-operation between large banks and smaller firms and create more choice for consumers and businesses. Reaching that promised land, however, will be a significant undertaking. Major banks must invest significant sums into overhauling legacy technology to make it possible to permit API integration, while the new legislation has sparked a broader debate around authentication and screen scraping. PSD2 seeks to solve these problems through a system that is faster, more accurate and more secure, but, in its current state, the market appears disjointed and there are concerns that this could stiﬂe innovation.
A quiet revolution The onset of PSD2 was supposed to be a seismic shift in the European banking sector, but for the general public, it came and went with little more than a whimper. Rather than an immediate change in the banking landscape, it now appears progress will be gradual. Part of this is the result of an impasse among banks, TPPs and regulators over how Open Banking should be implemented. The intention for PSD2 was to foster innovation, but it has also created a lack of cohesion in the market. This is because, unlike in the UK, it did not prescribe a common standard for institutions to implement. Not only are there are multiple API initiatives in Europe, each proposing their own set of standards, but banks can define their own interface, making it more difficult for TPPs to build products that make use of Open Banking technology. Frans Labuschagne, country manager for UK and Ireland at security software fintech Entersekt, says this is a both a turning point and an opportunity for European banks. “Their willingness to embrace, and capacity to effectively assimilate, these changes is expected to make or break banks; move with the times or get left behind,” he says. ›
The intention for PSD2 was to foster innovation, but it has also created a lack of cohesion in the market. 27
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› Sprint to the line When PSD2 first landed, it seemed many banks were a long way from embracing change. That apathy has to a certain extent been replaced with urgency as the deadline to implement RTS fast approaches. While European banks and payment service providers must have their APIs ready for the September 2019 deadline, the European Banking Authority required them to be ready for testing by 14 March. Sean Devaney, vice president of strategy for banking and financial markets at CGI UK, which provides IT and BPO services, says European banks were still able to provide contingency arrangements if they didn’t have dedicated APIs ahead of the March deadline. “Unfortunately, those contingency arrangements often amounted to allowing third parties to screen scrape data from bank sites,” he says. “This has some significant security implications for banks that allow this, such as providing opportunities for malicious third parties to persuade bank customers to grant far greater access to their accounts than a dedicated API would allow.” Now, the imminent deadline has motivated many banks to act. On the fintech side, the question is whether they have the scale and resources to become registered and regulated as a TPP, or if they should piggyback a larger player. Tristan Blampied, senior product manager at payments and compliance solutions provider Pelican, says smaller fintechs may be better off operating as resellers that piggyback other institutions, allowing them to “develop an app or functionality which the larger registered players then build into their own stack”. Roberts Bernans, co-founder of Nordigen, puts it bluntly: “Banks have two choices - to either deploy protectionist tactics, which are becoming increasingly frowned upon in the current market, or to open their APIs and create new business use-cases by partnering with leaner organisations.” The good, the bad and the API In the early days of the Open Banking era, much of the focus was on the security issues related to sharing data with fintech firms, even though a key 28 O P E N B A N K I N G E X P O . C O M
Third-party payment providers, such as Apple, Amazon and PayPal are already beneﬁting from the more ‘open’ banking ecosystem. Frans Labuschagne UK & Ireland Manager, fintech Entersekt
objective of PSD2 is to make payments and account access more ironclad. One measure being sought is to replace the practice of screen scraping with effective APIs and the use of strong authentication methods. Blampied says fraud will be a risk that is front of mind. “As we know, fraudsters are always looking for their next target and opportunity,” he says. “There are provisions of course to ensure controls and registers over the regulated TPPs who have the right to access the data upon their customers’ requests to do so; however, these need to be tightly enforced, and changes and updates applied in near real-time.” But the quest for greater security and fraud prevention may come at a cost. Tougher security standards may increase friction in payments, and this could put customers off. Another problem is the risk of fragmentation of API standards across Europe. While in the UK the Competition and Markets Authority required the country’s nine largest banks to collaborate and develop a common API from the start, it’s a different case for the rest of Europe and this is causing more issues. “The European Commission considered that imposing a single common API standard would be anticompetitive and therefore left the
technical details of PSD2’s APIs completely open, encouraging market forces to define them,” Hughes says. “Unfortunately, the European Commission’s position disregards the benefits of common standards and interoperability and risks creating fragmentation.” He adds: “Ironically, the EU’s decision not to impose a common API standard risks creating unnecessary complexity to the opening up of bank data, because different banks and countries across the EU may adopt different API standards.” Enter the challengers? Precisely who will benefit most from PSD2 and Open Banking is still up for grabs, but early indications suggest challenger banks and fintech companies are in a stronger position. Blampied at Pelican says the younger challenger banks were among the first to treat Open Banking as a strategic opportunity rather than a cumbersome regulatory obligation, and this may pay dividends down the road. Doing this, however, requires significant investment and development of customer-facing apps. Elsewhere, there is widespread belief that global tech giants are wellpositioned to gain from Open Banking. “Third-party payment providers, such as Apple, Amazon and PayPal are already benefiting from the more ‘open’ banking ecosystem,” Labuschagne says. “With access to customers’ financial data, an appreciation for user engagement and experience, and transactional infrastructures that suit the needs of the modern consumer, they are growing increasingly popular. Through increased interaction with these providers, consumers are also trusting them more and more.” As David Parker, founder and CEO of Polymath Consulting says: “It is like opening a new motorway but putting a 30 mile an hour speed limit on it; don’t be surprised if take up is low until you can start using it properly. Like with a new road, people need to discover where it goes and why it is better. PSD2 Open Banking will take time for users to adopt. It will all be about the propositions created around access to the data, whether that is easier loans and mortgages for consumers or better trade finance for business.” ■ March/April 2019
PSD2 Open Banking Third Party Provider Identity & Regulatory Checking Helping ASPSPs deliver PSD2 open banking by September 14th 2019 RESTful API based solution â€“ Plug and Play Full European TPP identity checking through 70+ eIDAS providers Complete European TPP regulatory checking from the 31 National Competent Authority databases Simple commercials, with no set up fee
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Brendan Jones Konsentus
Better prepared Former MBNA/Bank of America product development director Brendan Jones is now a part of the leadership team at RegTech firm Konsentus. He looks at the challenges that organisations are facing from PSD2 Open Banking. OBE: How has your career to date informed your opinions on the changing payments landscape? BJ: I have worked in the payments arena for more than 30 years, for a wide range of companies - from technology providers to banks and consulting. This has given me a rounded view of the world when it comes to payments and banking and the challenges many banks face in meeting new regulatory hurdles. OBE: What is the biggest change coming from the implementation of PSD2 Open Banking? BJ: The most transformative thing over the next three years is going to be the adoption of push payments or pay-bybank services. The traditional methods of payments based on card transactions will face tough competition from payby-bank payments, which will threaten the existing card payment networks. If we look at the operations of Google, Amazon, Facebook and Apple – aka GAFA – this pay-by-bank initiative will be ideal for them as very large merchants. They will be able to circumvent the existing networks, using direct bank-tobank rails to get paid. That is going to threaten the incumbents and it will align with the European Commission’s aim of breaking the effective duopoly of the existing payment network operators. When it comes to PSD2 Open Banking people make the mistake of talking about Europe in broad terms, but it is dangerous to do that. There are 31 countries within the European Economic Area (EEA) and the demographics are
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very different in each country, as are each population’s attitude to payments. In the UK, card-based payments are overtaking cash, but if you go to other European countries like the Netherlands or Germany, cards are not nearly as prevalent for online payments. OBE: How is Konsentus helping clients embrace the opportunities from Open Banking? BJ: Konsentus offers third party provider (TPP) Identity & Regulatory checking services, ensuring that financial institutions are PSD2 Open Banking compliant. The service is delivered through a SaaS-based solution using restful APIs with no set-up fee. Konsentus covers all the EEA 31 national competent authorities (NCAs), working with the European Banking Authority’s TPP Register and 70+ qualified trust service providers, to ensure financial institutions never provide data to unregulated TPPs. OBE: Why is monitoring of third party providers vital? BJ: Financial institutions need to ensure that data is only ever provided to a correctly-regulated TPP. TPPs are not required to have contractual relationships with the financial institutions to access payment accounts. So when a TPP knocks on the door (API) of a financial institution, the institution has no way of verifying the TPP’s identify, other than through the documentation the TPP presents. PSD2 Regulatory Technical Standards state that TPPs should use eIDAS (electronic identification, authentication and trust services) certificates to identify themselves. However, these are much like an MOT certificate in the UK (car road test certificate), which only says a car is roadworthy the moment it passes the test. As soon as it is driven off, it is a dated document. Likewise, an eIDAS certificate is only as good as the time it was issued. After that it only proves who an organisation was when it was granted regulatory status. In addition to proving who a TPP is, financial institutions also need to check they have the appropriate regulatory status to receive the information they
are requesting – AISP/PISP. If a financial institution provides the wrong data, or data to an unapproved TPP, they are potentially in breach of PSD2 and GDPR. OBE: Are there not free databases in the market that financial institutions can use? BJ: Yes, the European Banking Authority’s database is free. However, it is only updated twice a day and once daily by the NCAs. It only lists payment institutions, electronic money institutions and TPPs regulated or approved by NCAs; it does not cover credit institutions. The database is online and machine-readable but is not real time and once a financial institution downloads it, they then need to build the interrogation and management platform around it. While the NCA databases are also free, today none are machine readable and online. Crucially these databases are the source data for a TPP’s regulatory status. Thus, a financial institution would need to work with all 31 NCAs in order to have an up-to-date database. Neither the EBA or NCA databases provide online support for TPP identity checking, and thus this capability also needs to be built to interrogate and manage this data. OBE: There has been much discussion over whether PSD2 Open Banking will increase security risks. What are these and how can organisations protect themselves and their customers? The simplest risk is that data is given to an unregulated/unapproved TPP or provided without the explicit consent of the Payment Service User (PSU).
In terms of authentication processes through the API, there are three main authentication models: • Redirection: customer is redirected to the financial institution’s domain (online portal or app) for entering bank-issued security credentials and then directed back to third party provider. • Decoupled: customer uses a separate device (for authentication) to the device on which the third party app or website is being used. • Embedded: customer’s ASPSPissued credentials are given directly to the TPP Strong customer authentication is achieved by using two out of three specified elements: • Knowledge: e.g. password. • Possession: e.g. card details (CVV, PAN), one-time SMS code. • Inherence: e.g. fingerprint or other biometric elements. Strong customer authentication must be applied (unless exemption is available) where the payer makes an electronic payment or the customer accesses account data, directly or via a third party provider. The greatest risk to PSUs will be an increase in phishing attacks where fraudsters try and get users to voluntarily push payments to an account that has been taken over. However, in the UK new voluntary requirements around payee recognition from UK Finance, commonly referred to as Confirmation of Payee, along with other elements of security, are being put in place to help combat this risk. ■
Yes, the European Banking Authority’s database is free. However, it is only updated twice a day and once daily by the NCAs. It only lists payment institutions, electronic money institutions and TPPs regulated or approved by NCAs; it does not cover credit institutions.
Insight James Varga Chief Executive, The ID Co.
“I genuinely believe that Open Banking has the capacity to save consumers thousands of pounds across all aspects of their financial lives.”
s has been widely discussed elsewhere, one of the primary reasons for the introduction of Open Banking was to open up the proverbial treasure trove of data on which banks sit. Everything in our financial histories is known to the banks, and with 90 per cent of consumers banking with one of the big nine UK banks (the CMA9), these institutions know – or at worst can infer – almost everything about us. Our banks know if we have mortgages or rent; if we are married or single; if we drive or do not. I’ll wager they could tell if you were cheating on your spouse, based on your bank account information. And so, here we are: Open Banking has been introduced, opening bank data to consumers, from which they can derive value. Open Banking, through bank data, will provide opportunities for us all. We are witnessing a plethora of apps based on aggregating consumer information, as well as some – such as our own DirectID Insights – working with banks and financial institutions. In the future, and at our request, our data will become available for us to use across a whole range of services, both inside and outside financial services. Bank data Over the course of our product development at The ID Co. we’ve analysed somewhere in the region of one million bank statements to glean the information that is crucial to financial institutions. This has been no small undertaking. The breadth and complexity within even a standard 32 O P E N B A N K I N G E X P O . C O M
bank statement make them a modernday Gordian knot of information. It’s important to remember the words of the Open Banking Implementation Entity’s (OBIE’s) Imran Gulamhuseinwala when he said that Open Banking is an “enabling technology”. It needs services to be created for it to have a proposition to consumers. That’s why I’m so optimistic about the prospects for Open Banking, as some of the products and services being brought to market have superb customer propositions. I’m even more excited about how consumers will be able to exploit their financial data to save money. I genuinely believe that Open Banking has the capacity to save consumers thousands of pounds across all aspects of their financial lives. Whether it be big-ticket items such as loans and mortgages, utilities, right down to the removal of merchant-fees when purchasing items online, there is almost no end to the possibilities. Global developments I’ve been intrigued by developments that are currently under way, both in the UK and across the globe. The roadmap from the OBIE still has releases planned for 2019, so Open Banking functionality will continue to be enhanced. The idea of bank data becoming our own (rather than a bank’s) hasn’t really taken off in the UK yet, but I can see this idea moving into the mainstream over the next few years. This will probably be based, in principal, on the Australian Consumer Data Rights. Whether it has the same look and feel remains to be seen, but the underlying idea is the
next step for Open Banking in the UK. The effects of putting data in the consumer’s hands are sure to be gargantuan. Take one very simple example. It’s a well-known “quirk” of the financial system that the less money you possess, the more you pay for your financial services. Setting aside the moralities of the issue, putting bank data in the hands of each consumer, combined with the intrinsic power of Open Banking, will give those that are under-banked, or paying over the odds for their financial services, more power to leverage the system in their favour. An open future I’ve heard a lot of talk over the last year on ‘open APIs’, ‘open future’ and ‘open finance’, and I feel this direction of travel is correct. Open Banking is the first strand in handing each individual true responsibility and power over their financial data. Open Banking in the UK has only just begun to change the financial landscape here. I haven’t even mentioned the changes that incumbent institutions are currently undertaking in order to respond to the opportunities that Open Banking can bring. Our financial data is possibly the most valuable currency in the world, and it is only when we have a real stake in its use that we can take responsibility for it and make data work for us. ■ The ID Co. builds products that help businesses onboard their customers efficiently by solving pains such as affordability and credit risk. March/April 2019
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F E AT U R E / S M E S
Better than banking? Open Banking innovation is hitting the small business sector. Providers are forming partnerships with accountancy software firms and traditional banks to widen the options and offer much more than loans. Dippy Singh reports
ell any start-up that they don’t need to be innovative to succeed, and they will laugh you out of the room. Entrepreneurs and businesses have to be original to stay ahead. Yet, tell that same business they don’t need innovation to finance and grow the business. For too long, they have agreed. Finally, this is changing. Fintechs and challenger banks are leading the way in providing small and medium-sized enterprises (SMEs) with alternative lending and banking options. With the help of Open Banking they have big plans to continue supporting small businesses in ways the traditional banks have failed. Alternative lender iwoca is among them. It says it wants to make applying for a small business loan as ‘easy as booking a flight online’, with Open Banking playing a major part in this strategy. “Historically, the majority of SMEs have approached the UK’s largest four banks for funding and, in the case of first-time borrowers, the rejection rate has remained at around 50 per cent,” explains iwoca’s head of strategic partnerships Colin Goldstein. His firm aims to break down the barriers that stop small businesses accessing finance. Businesses that bank with Barclays, HSBC, Lloyds, NatWest or Santander can use Open Banking to provide up to five years’ transaction history in seconds when applying for a revolving credit facility or long-term loan from iwoca. The company claims that 90 per cent of all UK small business accounts can be linked to its credit decision engine. It is now undergoing a
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programme to finalise its connections with banks not currently within its scope. But iwoca isn’t alone in hoping to sweep up business from the incumbents by offering quicker service and different approaches to underwriting. Funding platform Swoop recently published details of its Open Banking API, which goes beyond financing. The company hopes to assist small businesses with cost savings by looking at their spending habits and monitoring examples of unnecessary outlays. “Through our API we analyse SMEs’ spending habits across subscriptions, FX, insurance, mobile, broadband and utilities,” says Ciarán Burke, Swoop’s co-founder and chief operating officer. “We can quickly show where they are overspending within each category and help them secure better rates, making them more profitable and, in turn, helping improve their affordability scores for lenders.” Through accessing accountancy package information, underwriters can also perform forecasting and trend analysis on predicted growth rates and assess how they want to rate the deal or the terms they are willing to offer that SME, Burke adds. But how far can Open Banking go to improve the available financial assistance for small businesses and what other innovations are on the horizon? Huge potential The Federation of Small Businesses (FSB) says Open Banking has made a slow start but believes its potential is huge. “At the heart of Open Banking’s future potential is aggregation,” advises Martin McTague, FSB policy and advocacy chairman. › March/April 2019
If you can bring together all the banking, accounting, payroll, debt and invoice data into one place, youâ€™ll be able to see how different elements of the business are interacting, in a way that hasnâ€™t been possible until now. Martin McTague Policy & Advocacy Chairman, FSB
F E AT U R E / S M E S
Through our API we analyse SMEs’ spending habits across subscriptions, FX, insurance, mobile, broadband and utilities. Ciarán Burke, Co-founder & Chief Operating Officer, Swoop
› “If you can bring together all the banking, accounting, payroll, debt and invoice data into one place, you’ll be able to see how different elements of the business are interacting, in a way that hasn’t been possible until now.” Potentially, businesses can improve profitability and productivity as a result of Open Banking innovation. Sharing the bigger picture with experts can open up opportunities for improved efficiency, improve the ability to manage late payment and enhance access to new finance, McTague claims. Changes to technological approaches will also yield benefits, says Goldstein. As more businesses adopt cloud accounting, he believes this area presents a big opportunity to help small businesses access finance and manage cash flow. This will increasingly be done in partnership with bookkeepers and accountants. “iwoca already has a partnership with Xero, the cloud accounting software, which enables Xero customers to link their account and streamline the application process, providing the information needed for a credit decision,” he says. Goldstein adds that bespoke services will become the norm. “In combination with taking a cash flow forecasting and management service, a business could receive custom-made finance solutions based on their specific cash flow needs.” New ecosystems Fintech Swoop says incumbent banks will increasingly have to align themselves
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with smaller specialists or adjust their business models to better serve SMEs. “As incumbents, they find themselves positioned at every aspect of the funding chain and are often the starting point for any SME looking for funding. But a lot of the early stage lending market isn’t suited to their economic model,” Burke says. “There is, however, huge value in being part of the ecosystem and knowing when an SME starts to become an interesting customer.” Burke explains that Swoop has already started talking to banks about white labelling its software, so they can offer a wider range of alternative lending solutions to businesses. “This will, at least, offer SMEs an alternative to help them get started on their growth journey. Then by being a cog in that ecosystem, the bank can keep up to date with that SME, so they are on hand when they do become a banking customer.” He forecasts banks will start to build out relationships with panels of lenders that suit early stage businesses at various levels of funding, up to the point where the bank wants to enter the market. “This will further educate the market about the wide sources of alternative lending and help them understand it is normal to use various forms of funding and move across providers as their business changes.” Commercial lender Wesleyan Bank foresees businesses becoming savvier in matching funding to their specific requirements.
“In the past, the SME’s overdraft would be the ‘go to’ solution. Overdrafts have their place for day-to-day working capital, but factoring and invoice discounting facilities are common amongst SMEs, and more businesses appear to be seeking genuine asset finance solutions,” says Paul Slapa, head of direct sales at Wesleyan. Traditional lending in decline With the demand for external finance and traditional bank lending continuing to decline, there is certainly an appetite among SMEs for alternative funding. According to 2019 figures from the state-owned British Business Bank, just 36 per cent of smaller businesses are using external finance, compared to 44 per cent in 2012. Conversely, awareness of alternatives to traditional finance has continued to grow, with 52 per cent of SMEs aware of peer-to-peer lending, 70 per cent aware of crowdfunding platforms and 69 per cent aware of venture capital. In addition, equity, asset and market-based finance have grown, while invoice finance rose by a massive 105 per cent in 2018 to £1.1bn. “Invoice financing is really popular because it kills the need to wait 60 to 90 days for big clients to pay you,” says Burke. “Once you’ve got a facility in place, cash can get into your account pretty much instantaneously. This is a big growth tactic for early stage businesses who can work the margin given by the invoice finance providers into their business model, so they can use quick cash to build out their team and activities much more quickly.” There are a large number of alternative lenders in the UK willing to lend against other assets, including stocks, intellectual property, future trade, statements of work, guarantees, and e-commerce performance. Small e-commerce businesses can often get loans on the value of their past Amazon and eBay transactions without having to do any traditional credit checks, while there is a wide range of providers who will look at a business’ debtors and lend against the value of that. “Even things like your R&D tax return can be used to generate a facility, so if you’re a young SME in the UK creating value through revenue, assets or IP, there have never been more options for you,” says Burke. ■ March/April 2019
The small business end: Driving adoption with education
Jonny Hawkins Head of Data Science, Liberis
t’s no secret that Open Banking is set to notably increase consumer access to financial products, whether that be debt management tools, overdrafts and loans, or modern banking. But how can this new technology benefit businesses, as well as the individual consumer? Here at Liberis, we believe the most prominent benefit to small businesses is the notable improvements Open Banking can bring to the business finance market. Accessing finance can be a huge challenge for UK small businesses. Especially as the mainstream banking system has so significantly retreated from funding them; with the total amount of bank overdrafts and loans outstanding to small businesses decreasing by nearly £6 billion in the past five years. Our recent research has shown nearly 30 per cent of UK small and medium-sized enterprises (SMEs) require funding simply to stay afloat, and the most common funding request comes in at around £30,000. Naturally, limiting access to this finance can not only hinder small business growth, but negatively impact wider economic progress too. By taking the data that banks have – and are often reluctant to lend on – the rise of Open Banking is putting the power in the hands of small businesses, and the providers that are truly dedicated to funding their growth. Eliminating the hassle At Liberis, we were the first in the UK market to process a full small business funding application via Open Banking in May 2018, and we have since seen the benefits to small businesses first-hand. These include: increased transparency, smoother form-filling, fairer credit decisions and greater growth opportunities – and these are just the beginning. With the use of our secure Open Banking API, which is powered
by Openwrks, we can use Open Banking technology with all applying businesses (provided they work with a compatible bank) to support the application process by gathering bank statements and revenue documentation at the click of a button. We can then use this data to price and decision the applying business appropriately. It’s speedier, it’s smoother and, by swapping out the attached documents for those secure APIs, it’s safer too. In particular, proving what their revenues have been can be a tougher step for small businesses than it is for single consumers applying for finance. A consumer’s revenue is usually just their salary. Applying small business owners need to speak with their business bank as well as their card payment processors to access this information. Thankfully for the world of busy entrepreneurs, the use of Open Banking is now eliminating this hassle. It will take some steps to improve this process on a wider scale as the data is less mature and less commonly dealt with. But we have already
“Our recent research has shown nearly 30 per cent of UK small and medium-sized enterprises (SMEs) require funding simply to stay afloat, and the most common funding request comes in at around £30,000.”
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taken steps towards using the process to improve our customer journey and responsibly fast-track small business’ development. Customer views on Open Banking Open Banking technology is, without a doubt, a huge milestone in the financial world. The resulting faster applications and increased access to funding is exactly what the small business community requires. However, when it comes to a new form of data sharing there is an element of initial uncertainty. That said, since we implemented Open Banking into our funding process, we’ve had an extremely positive response from customers. We’ve found that, particularly in the case of Open Banking, if you’re offering a product that businesses truly value, they are generally happy to engage with new processes – which actually makes applying for the product that much easier. Whilst there are a lot of providers out there and solutions to suit every business type, awareness of these options is still low. Our research has found that, whilst 62 per cent of UK SMEs say they need funding to grow and expand, 57 per cent were unsure who or where to obtain funding from and 53 per cent did not have a set amount in mind when looking to access finance. Increased education in small business finance and the options for application is clearly needed. As leaders in the alternative finance space, we are keen to shine a spotlight on this issue to help drive additional support. ■
Liberis is an alternative finance platform. It was the first to process a small business funding application via Open Banking in the UK market. www.liberis.co.uk 37
F E AT U R E / L E N D I N G
The maturity of the Open access to customer risk data should mean better customer choice and safer lending decisions. How will that change the financial landscape in the coming years? Joe McGrath reports
he British lending landscape is undergoing a transformation, the likes of which have not been seen since the years leading up to the global financial crisis. In both personal and commercial lending, new market entrants have been arriving weekly. Low interest rates, increased competition and better technology have stimulated borrowing in all markets, not least in UK consumer finance. “We have seen an increasing number of fintechs entering the personal loans market,” says Sarah Green, head of mortgages and retail banking at consulting group Sutherland. “These are gradually eroding the market share of traditional financial institutions as more borrowers turn to alternative lenders instead of banks. They are able to deliver a highlyautomated, quick and streamlined process that requires significantly less engagement from the customer, going from application to estimated loan offer in just minutes.” The growing popularity of new market entrants is certainly the case. But it is wrong to assume that the growth has
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come purely from alternative lenders. In recent years, underwriting criteria across the market have loosened as approaches to default risk have become more sophisticated. Technology has allowed borrowing decisions to be increasingly tailored to individual circumstances. The source of the money behind the loans has also changed. Institutional investors have developed an appetite for these markets after asset managers stepped in to fill a gap left by banks when they retreated after 2008. Banks were licking their wounds after huge losses and had to navigate punitive cost implications of new regulations to prevent another crash. Public money has also been finding its way into the market, not just through pension funds, but through crowdfunding platforms and private funding sources. More recently, a handful of large brokers have evolved into lenders thanks to the return of traditional warehouse lending lines, albeit not on the scale witnessed before the crisis. Distorted picture Figures from trade group UK Finance show that total outstanding consumer
UK lending market borrowing in unsecured loans grew from £29.8 billion in Q2 2013, to £35.3 billion by the same period in 2018. While it would be easy to attribute the growth in the lending market to the innovations employed in the lead up to the UK’s Open Banking deadline in January 2018, the truth is that much of the growth in volumes is for other reasons. However, that does not detract from the huge advances that the lending market has made in recent months. There is no doubt that the groundwork done to improve artificial intelligence, applications and consumer credit profile assessments is being translated into new approaches to lending. “While the emergence of new fintechs has led to a smoother lending experience for many, Open Banking brings a huge opportunity to streamline that process further still,” explains Sutherland’s Green. “Instead of customers having to upload necessary documentation, lenders will be able to access that information directly from the bank, reducing input from the customer to an absolute minimum.” In the consumer market, there have been vast improvements in automated approvals for small, personal loans. Customers with easy-to-understand credit records can now see the instant transfer of funds to their bank account from organisations with which they
don’t already have a relationship, thanks to better approaches to credit assessments and technology. However, improvements in AI technology and credit record analytics are yet at a stage where they can offer the same service to everyone. In the specialist lending market, brokers continue to be frustrated by the wide range of service standards, meaning that pay-out times can be a complete lottery for many consumers. Tony Sutton, a specialist lending broker with more than 36 years’ experience in personal loans and mortgages, says his clients want to know “how much does it cost?” and “when can I have it?” He says that the difference in sophistication between lenders is now vast, with the secondcharge lending market especially far behind with development. ›
While the emergence of new fintechs has led to a smoother lending experience for many, Open Banking brings a huge opportunity to streamline that process further still. Sarah Green, Head of Mortgages & Retail Banking, Sutherland
F E AT U R E / L E N D I N G
› Why the delay? Open Banking commentators say that the speed of transformation in this market may appear to be relatively slow, but much is being done to prepare lenders for the years ahead. Particular attention is being paid to analysis of credit default risks, to be able to extend credit quicker, while simultaneously scanning competitors to ensure the best profit margin possible for the lender. The groundwork being done now will effectively allow lenders to really analyse the customer, scrutinise their data, and have a better understanding of their propensity to default, says Green. “This enhanced analytics capability could also lead to greater personalisation – for example, lenders could give customers added perks, such as a free coffee every month in what the data suggests is their favourite coffee shop. “Alongside this personalisation is the potential for more relevant cross-selling. Data from the bank would reveal things like when the customer’s insurance is due for renewal, for example, so lenders would be able to target them with a better deal.” Future developments In response to the new market entrants and to forecast changes in economic conditions, legacy players are looking again at their lending approaches and how they assess customer creditworthiness. Dave Tonge, chief technology officer at fintech Moneyhub, explains that lenders are increasingly realising that the customer experience is where they need to compete. He explains that this may mean that customers applying for a loan with one lender may be accepted but eventually receive their loan from a different provider, with the lender making a commercial margin by acting as a broker. Open Banking makes this increasingly possible and all at a speed which would seem relatively seamless to most customers. Of course, the practice of passing customer ‘leads’ out the back door to third parties is not a new thing for lenders. In the days prior to the credit 40 O P E N B A N K I N G E X P O . C O M
crisis, high street banks would pass customers who had been turned down for ‘prime’ lending, and who gave their consent, to third-party brokers to place these loans. While this process certainly wasn’t automated, or quick, it shows the commercial appetite for such a business model. Tonge says that third-party tools will eventually look at customer finances and flag where there is a better deal, allowing them to switch to a lower interest payment at the touch of a button. “It is about showing people their eligibility in real time.” Encouragingly, the competition in the lending market is not limited to small scale borrowing. It is also spilling over into the intermediated sector, benefiting customers that use brokers because of their specialist borrowing profiles. The bridging, buy-to-let and development finance markets have all seen new entrants, with some offering impressive levels of customer service and technology. Specialist finance broker Tony Sutton says technology adopted by companies such as LendInvest and LendCo is setting the standard. “Some lenders have really embraced new technology,” he says. “These two new lenders that entered the buy-to-let market in the past 18 months are good examples. With an application form automatically generated to the client, we entered the case as soon as the client submitted the form and the lender was able to assess the case and pass it to valuation within three hours.”
By having access to Open Banking data, ﬁntechs and banks will be able to build more revolutionary products for customers. Alastair Preacher Chief Product Officer, Funding Options
Beyond personal loans Innovation in the lending sector has also not been limited to consumers. Challenger banks and fintech market entrants have started to chip away at the monopoly of legacy players with their offers of instant overdrafts, short-term business loans and modern invoice finance alternatives. “In the past two years, we’ve seen more alternative lenders emerging in the business finance sector, offering an increasing number of financial products,” explains Alastair Preacher, chief product officer at commercial finance broker Funding Options. “These alternative lenders have focused on speed and convenience for customers, as they try to compete with the main banks on something other than price.” A report from the Federation of Small Businesses, FinTech and market structure in financial services, published in February 2018, estimated total lending from fintechs and non-traditional sources accounted for £5.5 billion of all UK business loans extended in 2017. An assessment of the data by the Cambridge Centre for Alternative Finance was that this amounted to 29.2 per cent of all new loans to UK small and medium-sized enterprises (SMEs). Given the potential size of the SME lending market, it is perhaps unsurprising that banks are now welcoming fintechs with open arms. Preacher says banks are becoming more vocal about such partnerships as they try to offer a greater number of services as part of their overall service to business customers. “By having access to Open Banking data, fintechs and banks will be able to build more revolutionary products for customers, improving the features and services available to small business owners. Open Banking will continue to make the customer journey faster and easier, allowing more businesses to get funding and succeed.” Tonge agrees: “When you are looking at invoice financing or bridging loans, it can sometimes be difficult to make these decisions because you need more data. But, with a richer level of data on transactions, these services will be easier to provide,” he says. ■ March/April 2019
Global Perspectives on Open Banking: Africa Focus
Adédèjì Olowè Trustee, Open Banking Nigeria
inancial exclusion is real and is much more than not being able to pay. According to the European Investment Bank, as of 2017, 66 per cent of adults in Africa did not have access to financial services, many of which have the potential to transform their lives. It is no surprise that financial exclusion correlates tightly with poverty. There are arguments made that the intelligentsia is trying to impose financial inclusion on the poor to track their spending, exploit them and take away their privacy. Nothing could be further from the truth. Digital financial transactions leave electronic trails that could be monitored by unscrupulous companies and despotic governments, but the same applies to access to cheap mobile phones and the internet. Nobody is yet to think access to affordable telephony and internet is bad for the poor and vulnerable; these are seen as critical tools to lift people out of poverty and illiteracy. Over the last 10 years, there have been concerted efforts by development finance institutions (DFIs), national governments and impact investors to improve financial inclusion but the results have been mostly disappointing. Beyond a smattering of East African countries like Kenya and Tanzania, financial inclusion continues to be an intractable challenge. African banks do not have incentives to provide financial services to the poor for various reasons. A significant reason is that they do not know how financial inclusion can be done profitably. The banks have a blind spot: they only know how to do “money at rest” banking. Money at rest banking is where banks drive liability and make revenue from loans and treasury transactions. Since the poor would never have enough to save, at least in the beginning, the business case for financially-inclusive products does not make sense to bankers.
This is where the fintechs come in. In a world of scale and billions of transactions, smaller companies understand how to provide nifty mobile apps that are simple to run, with reach, and without the overhead that goes with running large banks. Furthermore, smaller companies are flexible, can tailor their services to local requirements and they are very fast in responding to needs and changes. Nevertheless, financial inclusion has not achieved the traction required because a significant barrier exists that makes these efforts and apps useless: they are not able to connect to the banking and financial services network. The usefulness of any payment service is proportional to its ability to seamlessly connect to the existing legacy financial network. No fintech has the capacity to build an alternative financial system as M-PESA did in Kenya. Fintechs and developers are not able to understand why it takes months and years to integrate with a bank while it takes hours to use much more complex APIs with the likes of Google and Amazon. What should be an inconsequential integration now takes months and sometimes years. Global multi-billion-dollar companies are not immune to this, and it took Samsung three years to go live with Samsung Pay in South Africa. Open Banking removes this barrier by making it trivial for authorized fintechs to connect, allowing them to spend more time honing their apps or negotiating contracts. It prevents them having to spend years of time,
tears, money, and blood to build their apps only to start all over again with the next bank because it shares little or no commonality of codes with the previous banks. Open Banking does this by the development of a single API standard that everyone knows and which all banks support. Banks are used to electronic payments standards: ISO 8583 and ISO 7810 define card payment transactions and physical attributes of cards. Without these standards, international card payments would have been impossible. The benefits of Open Banking to financial inclusion are many and massive. Fintechs would be able to develop their products quickly and get them to the market faster. It would cost much less to build and deploy; while the transactions would be cheaper for everyone, especially for the poor and vulnerable who are very sensitive to transaction pricing. Most importantly, even if only 50 per cent of financially excluded people can be brought into the formal financial space, the world would be a better place. Being financially included means that the poor can receive money quickly, participate in commerce beyond the reach of their villages and live a more fulfilling life, with access to credit and better protection for their valuables. Women can save and be in control of their money. Vulnerable people can be protected. Standards are the unsung heroes of progress. Open Banking will be no different. ■
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Open Banking Nigeria is building a common standard for Open Banking APIs. 41
Insight Wayne Brown UK Advisory Digital Banking Operations Leader, Ernst & Young LLP
“New technologies in the branches will lower costs on several fronts. Open APIs will eliminate the need for certain expensive labour and hardware. Instead of desktops, employees will use tablets.”
eople have been predicting the demise of bank branches for years. Today that death knell seems to be ringing louder than ever as foot traffic continues to decline, new technologies allow customers to conduct banking from their phones, and mobile-only challenger banks attract customers. But the traditional branch network is far from dead. In fact, with new Open Banking technologies, it’s potentially a major structural advantage over banks that have no ability to meet their customers in person. Bank branches must adapt to changing times. We’ve identified three ways Open Banking technologies will help: 1. Manage complex customer needs There is a faulty assumption that customers in the future – particularly digitally-native millennials – will never need human interaction. In fact, EY research has found just the opposite. At some point, most customers will face an issue with enough complexity that they will need to speak to someone and the branch provides a perfect channel. They might be applying for a mortgage, or they might need to remove someone recently deceased from an account. Exactly how much complexity each customer can handle on their own will vary, but even millennials may find occasions to visit a bank branch. These complex and personal interactions will take on greater meaning. Each interaction will be an opportunity for the bank to distinguish itself and deepen its relationship with the customer. 42 O P E N B A N K I N G E X P O . C O M
By reducing the administrative burden on branch employees in areas such as income and expenditure collection, APIs allow them to focus more on each customer interaction. 2. Demonstrate increasing customer-centricity In response to Open Banking, traditional banks will need to redesign the physical branch, the skills within the branch, and the products themselves – all with an eye toward putting the customer at the centre. Today’s branch design, characterised by teller counters and queues, is hundreds of years old and its days are numbered. Indeed, some new branches are almost unrecognisable: coffee and pastry counters have replaced counters, and comfortable chairs and privacy screens have replaced queues. Some banks have reimagined themselves as a community hub where local entrepreneurs can work. Also changing will be the mix of branch employee skills. Banks will need employees with strong interpersonal skills for complex and sometimes emotional tasks, such as teaching customers to use mobile apps, or managing vulnerable customers with the help of open APIs, such as those with gambling addictions. Finally, traditional banks will need to redesign their products and services to ensure more seamless customer journeys enabled by Open Banking. Today it’s impossible for many bank customers to begin a mortgage application online, save it, and continue in person at the branch. Meanwhile, microservices that
leverage an array of partnerships will reshape the product and service line-up. For example, generic savings accounts could be replaced by a service that uses open APIs to connect to airlines or holiday destinations so the customer can save for a specific vacation. 3. Lower operating model costs Today’s branch networks are expensive to operate. New technologies in the branches will lower costs on several fronts. Open APIs will eliminate the need for certain expensive labour and hardware. Instead of desktops, employees will use tablets. Instead of a server in each branch, the branches will leverage the cloud. Instead of large-scale labour-intensive system upgrades, software updates will be pushed out to the technology. And since microservices reduce integration layers, products and services can be swapped in and out with ease. The bank branch is far from dead. But, for it to survive, banks must reimagine its design, staffing, technology infrastructure and operating model within the context of an Open Banking world. That might not be easy, but it will be worth the effort. By leveraging Open Banking to put the customer at the centre, the branch network can become a strategic weapon and potent answer to mobile-only banks. ■ The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms. March/April 2019
Insight Irina Tsyganok Engineering Lead, Open Banking Lloyds Banking Group
“The disruption brought by Open Banking brings down the divide between technical and business teams. Technology is the common language for all.”
pen Banking is an unprecedented disruptor in the financial industry, at the core of which lie data sharing and customer-centricity. The regulatory requirement to share customer data is rapidly transforming both the language and the mindset of the financial industry. For the first time, a product built by the bank is described in technological terms, such as APIs, response times, data security and integrity, performance. And for the first time, the consumers of Open Banking are tech-savvy disruptors and start-ups, as opposed to individuals who hold accounts with the bank. This shift to a technology-first approach means technological literacy is becoming essential for all stakeholders. Although understood by developers, official definitions of APIs are no more than a bunch of words to non-technical audience. However, understanding what APIs are, how they work and how they are consumed is essential not just for technical development teams, but also for product and business teams, who work to turn these units of code into sources of customer and business value. The Open Banking value proposition is comprised predominantly of ‘REST’ (representational state transfer) APIs. A great analogy used to explain REST APIs and the data flow through main components of the system is that of a restaurant. Imagine the waiter as the API, and you are asking for service. This makes you the API consumer. The menu is API documentation, which explains what services the API can provide. The kitchen represents
a database, that holds particular types of data. The data are a selection of ingredients, bought by the buyer following directions from the chef. These ingredients are selected, prepared and processed before they become a meal on the menu. The customer has no access to the kitchen, their only way of getting anything is to communicate with the waiter. In the technical world this is referred to as an API call. The meal brought to the customer by the waiter represents a response to an API call. The length of the time it took is known as the length of response. The same restaurant analogy can be used to refer to customer-centricity. What would ensure that a customer in our restaurant receives the best possible experience? It can be an array of factors – a variety of ingredients, availability of meals, accuracy of response – i.e. the waiter serves the orders to the right customers; and of course, the speed of response – hungry customers do not like to wait. In addition to the main function of serving meals or data, it is important to provide a pleasant interior for the customers to enjoy their meals. In Open Banking, the portal should provide a clean, user-friendly interface. Other important considerations in customer-centricity are data security and integrity. Just as you wouldn’t want to serve nuts to customers with allergies, Open Banking providers must serve the right data. Finally, it is important to ensure that the number of orders rejected by consumers is kept to a minimum.
Whenever a meal is returned, reasons for the return need to be carefully considered, and improvements made. Understanding the main data flow through API and Open Banking ecosystems improves teams’ ability to create better customer experiences and helps identify changes that result in highest customer value being created. Implementing Open Banking is like launching a new restaurant – the providers are facing challenges of ensuring data integrity and security, speed and accuracy of API responses while building a clean and intuitive user interface via which the data is exposed. And while development teams are playing roles of restaurant buyers, chefs and maintenance workers, product and business teams have a more impactful role to play in creating user value. To do this successfully, all teams need to share a thorough understanding of the main value proposition of the business and communicate in a language that is understood by everyone. The disruption brought by Open Banking brings down the divide between technical and business teams. In the new world, API is the product, the customer is king, and technology is the common language for all. ■
Lloyds Banking Group is one of the UK’s nine largest banks. 43
THE GLOVES ARE OFF The payments arena is fast becoming one of the most competitive sub-sectors of the banking industry, full of companies with vastly different backgrounds. We asked three industry experts who they thought would come out on top.
Marko Sjoblom Founder & CEO Fiinu
WHAT TYPE OF ORGANISATION WILL DOMINATE THE PAYMENTS SECTOR IN 10 YEARS?
Faith Reynolds Independent Consumer Representative for Open Banking Implementation Entity
Tony Craddock Director General Emerging Payments Association
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I believe it will be smaller, nimbler, players that dominate. The larger ones, the incumbents, will still be operating in the market in one way or another. They may choose to invest in these smaller players. If they do, that’s where things could get very interesting. They would have to allow these firms to run their own operations and not get sucked into the larger corporations. GAFA (Google, Amazon, Facebook and Apple) will continue to invest in this space. If you look at what Chinese online payments provider Ant Financial is doing, it is already incredibly innovative and quick. We will likely see something similar coming Ten years is a long time and technology is moving quickly. But when it comes to the plumbing of payments, it takes time. I live in Devon and contactless only arrived last year. So, in ten years, the impact of the New Payments Architecture and Open Finance should have reached maturity, and we’ll finally be living the promise of today. But what it will feels like to pay will be radically different. Central to all innovation around real-time will be authentication, so identity providers could dominate. Clunky one-time passcodes will be a thing of the past and sophisticated biometrics, combined with longitudinal profile data, will have taken over. Connected to identity will be a strong cyber security industry. What happens when you see a combination of rapid technological change, a competitive investment climate with too much money chasing too few opportunities, a benign regulator supporting competition and consumers eager to adopt new products rapidly? You’ll get a flood of innovative products, lots of new entrants, multiple fast-growing companies competing for share, an explosion of adoption and attention, followed by a smattering of unicorns, mergers and acquisitions and some painful failures. That’s payments. Here are six crucial qualities organisations will need to be successful. The first is a scalable business model. This is not necessarily about processing trillions of dollars. It’s about thinking
towards Europe. Amazon is also very active in this space. Plug-in banking is going to be the transformative model. In the payments landscape, you could think of the TransferWise, PayPal, and Revoluts of this world as forms of plug-in banking. They are effectively using the infrastructure to their advantage. The current banking industry is turning into more of a utility for these specialist players. They have a much lighter infrastructure compared to legacy players and they have unbundled basic services. For example, we may think of a personal current account as one product, but it has many different features embedded.
These features include a facility for local payments, international payments, foreign exchange and an overdraft. In the context of payments, we have already started to see the transformation play out. If you need to transfer money abroad, there is no point paying £30 or £40 for your bank to do it, when you can get a cheaper, faster service through Revolut or TransferWise. Consumers are starting to think in those terms. Changes to the payments sector are part of what I see as a fintech evolution, with people joining from all walks of life. Fundamentally, you must have a technology background and you will need to understand finance. ■
Retailers will continue to dominate the market. Payments will be invisible, rather than embedded. At home, smart devices will increase and automated assistants will keep on top of boring household chores, like paying bills and saving for kids’ school trips. As payments become more invisible, AI will only prompt the consumer to action when something unusual happens or falls outside pre-agreed budgets. Voice activation may extend outside the home and the car, to find other uses in a purchasing context. Combined with eye-tracking, wearables might provide advice on which gift to buy for a partner or which food to avoid on a menu. Queuing to pay or checking in at a hotel will be limited as facial recognition or
other biometrics do the job on the spot. Big tech will be busy in the market. GAFA could make a play to disintermediate banks entirely in the payments space. But more regulation to curtail their power potentially looms on the ten-year horizon and this may stymie appetite for anything that attracts the wrong kind of stronger, regulatory attention. They may rather focus on harnessing the power of their AI to help shape and direct the nature of payments people make. Thinking itself will be a new form of data to be captured. Another ten years on and wearables like ‘AlterEgo’ will mean payments won’t require more than a thought, reducing friction even further. Let’s hope the WiFi on South West Trains can keep up! ■
about margin at the outset. Second, firms also need to be adept at leveraging proven technologies. It’s not always the trailblazers in tech who hit the jackpot – think Intel and Nokia. Third: being globally-oriented but not necessarily global. Payments is a global business that relies on local adoption. It’s rare to be able to replicate a winning formula in different countries, let alone regions. M-Pesa only really works in Kenya – in nearby Tanzania, it bombed. So, keep an eye on what is working elsewhere, but adapt and apply this at home. Fourth: operating in B2B not B2C. If you want scale, surely you want consumers? Not necessarily. Everyone you sell to in B2B has their own customers. And there are lots of businesses – 9,500
new businesses are registered every week in the UK. Companies that get someone else to do the difficult job of dealing with end users are more likely to be winners. A two-tone leadership style is the fifth quality. Successful firms will be open, collaborative, creative and flexible on the one hand. On the other hand, they need to be ruthless with validating business cases, manically protective of culture, obsessive about reporting processes, and masters at selecting the right people and delegating well to them. Finally, firms need acceptance that data is often the secret sauce. Data, data, everywhere. Hard to see, so hard to copy. This needs to be built into the fabric of the business. ■
Plug-in banking is going to be the transformative model. In the payments landscape, you could think of the TransferWise, PayPal, and Revoluts of this world as forms of plug-in banking. Fiinu is a challenger bank in the pre-application phase of the Bank of England authorisation process.
Voice activation may extend outside the home and the car, to find other uses in a purchasing context. Combined with eye-tracking, wearables might provide advice on which gift to buy for a partner or which food to avoid on a menu.
If you want scale, surely you want consumers? Not necessarily. Everyone you sell to in B2B has their own customers. And there are lots of businesses – 9,500 new businesses are registered every week in the UK. The Emerging Payments Association (EPA) is a commercial membership association of payments industry influencers.
The Open Banking & PSD2 Hub Xxxxxx
Email: firstname.lastname@example.org Company: Cifas
Telephone: 020 3004 3600
Contact: Lee D’Arcy
Cifas is the UK’s leading fraud prevention service and has been for over 30 years. Through Cifas, over 500 member organisations from across the sectors share data and intelligence to protect their business, employees and customers from fraud and financial crime. Our method of collaboration and cooperation, bringing together sectors and organisations, is the most effective way to tackle financial crime. In short – fraudsters don’t discriminate, so neither should we. And as a not-for-profit member organisation, all our income is reinvested into creating new technology and innovations: continually improving your ability to detect, deter and prevent fraud and financial crime.
calum.stephens@ Email: emergingpayments.org Company: EPA
Telephone: +44 20 7378 9890
Contact: Calum Stephens
The EPA connects the payments ecosystem, encourages innovation and drives profitable business growth for payments companies. Its goals are to strengthen and expand the payments industry to the benefit of all stakeholders by delivering a comprehensive programme of activities which addresses key issues impacting the industry including: A programme of 70 events annually, Annual Black-Tie award ceremony, Leading industry change projects, Lobbying activities Training and development, Research, reports and white papers The EPA has over 130 members from across the payments value chain; including payments schemes, banks and issuers, PSPs, and more.
Email: email@example.com Company: Equifax
Telephone: 07973 713723
Contact: Robert McKechnie
Equifax is a global information solutions company that uses trusted unique data, innovative analytics, technology and industry expertise to power organisations and individuals around the world by transforming knowledge into insights that help make more informed business and personal decisions. We believe in the power of partnerships, to help our clients use Open Banking to provide better experiences and better products for their customers. By combining our data assets, analytical expertise and innovative digital technologies, our partnership with Account Score and their AISP consents.online delivers real-time, end-to-end Open Banking solutions to enhance customer on-boarding processes and drive growth through better decisioning.
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Open Banking as a Service (OBaaS)
Transaction categorisation & analytics
Improved online customer journeys
Want to see your company listed here? Contact Adam at firstname.lastname@example.org or call 020 7993 5159
Email: Aurelie.email@example.com Company: Experian
Telephone: +31 70 440 4000
Contact: Aurelie Dousset
Experian is the world’s leading global information services company. During life’s big moments – from buying a home or a car, to sending a child to college, to growing a business by connecting with new customers – we empower consumers and our clients to manage their data with confidence. We help individuals to take financial control and access financial services, businesses to make smarter decisions and thrive, lenders to lend more responsibly, and organisations to prevent identity fraud and crime. We have 16,500 people operating across 39 countries and every day we’re investing in new technologies, talented people and innovation to help all our clients maximise every opportunity. We are listed on the London Stock Exchange (EXPN) and are a constituent of the FTSE 100 Index.
Email: firstname.lastname@example.org Company: FinTech North
Telephone: 0113 834 3133
Contact: Julian Wells
FinTech North is an events-based initiative operating in the north. Founded in Leeds in 2016 by Whitecap Consulting and White Label Crowdfunding, it has now expanded into a series of conferences and events across multiple locations. FinTech North has hosted over 30 events attracting over 3300 delegate registrations from over 600 different companies, with speakers drawn from 20 countries. Open Banking is a central theme of many of the events.
Email: email@example.com Company: GDS Link
Telephone: 03303 115116
Contact: Keith Hale
GDS Link is a global provider of credit risk management solutions. Our decision engine allows credit risk teams to simulate, test and deploy models, rules, strategies and policies quickly and accurately. This is backed by our data engine which incorporates connections to all major sources of data in the UK, allowing aggregation of credit and Open Banking data to be used for expenditure classification, customer identity and verification, and affordability. Our case management solution case centre uses a browser front-end backed by a NoSQL database to allow for rapid processing where manual intervention is required.
End to end open banking capabilities on demand Granular insights with cross border categorization as-a-service Next generation of credit and affordability to fuel frictionless digital journeys
The Open Banking & PSD2 Hub
Email: firstname.lastname@example.org Company: Konsentus Ltd.
Telephone: 07785 388867
Contact: Brendan Jones
Konsentus provides Third Party Provider (TPPs) identity & regulatory checking ensuring Financial Institutions (FIs) are PSD2 open banking compliant. Delivered through a SaaS based solution using restful APIs with no set-up fee Konsentus operates across all 31 National Competent Authorities and works with the EBA TPP Register and 70+ QTSPs to ensure FIs never provide data to unregulated TPPs. Working both through partners including Mastercard, or providing services directly, Konsentus is the leading SaaS based TPP identity and regulatory checking solution in Europe.
Email: email@example.com Company: OpenWrks
Telephone: 07917 131478
Contact: David Coghlan
OpenWrks make Open Banking work. Our mission is to help everyone understand what they can afford to invest, save, borrow and repay. Using Open Banking, we make it easy for people to securely share their financial information with companies they trust, so those companies can provide better, more personalised products, support and advice. We reduce costs for our clients by automating affordability assessments as well as increasing revenues by helping them provide the right financial products and advice, at the right time, for their customers.
Email: firstname.lastname@example.org Company: Token Inc.
Telephone: 07554 663340
Contact: Molly Rosedale
Tokenâ€™s universal Open Banking platform, TokenOSTM, allows banks and third parties to interact in a digital global financial services ecosystem. Tokenâ€™s turnkey service helps banks comply with PSD2 in less than 90 days and launch new Open Banking propositions. Third parties, such as payment processors, merchants and developers, have access to account data and payment initiation at over 4,000 European banks through a single API, and the tools to deliver best-in-class use cases. Token.io is authorised as an AISP and as a PISP by the FCA in the UK and has passporting rights in an additional 20 countries.
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PSD2 open banking Compliance
SaaS based, plug and play TPP identity & regulatory checking TPP identity & regulatory checking for ASPSPS
Income and Expenditure
Frictionless bank direct payment
Email: David.Firth@callcreditgroup.com Company: TransUnion
Telephone: 07802 799501
Contact: David Firth
TransUnion is a leading global risk and information solutions provider to businesses and consumers. The company provides consumer reports, risk scores, analytical services and decisioning capabilities to businesses. Businesses embed its solutions into their process workflows to acquire new customers, assess consumer ability to pay for services, identify cross-selling opportunities, measure and manage debt portfolio risk, collect debt, verify consumer identities and investigate potential fraud. Consumers use its solutions to view their credit profiles and access analytical tools that help them understand and manage their personal information and take precautions against identity theft.
Company: Whitecap Consulting
Telephone: 0113 834 3133
Contact: Julian Wells
Whitecap Consulting is a strategy consultancy based in Leeds, Manchester, Milton Keynes, Bristol and Newcastle. It is particularly active in the digital, technology and FinTech sectors, with Open Banking and PSD2 being a common theme across many projects. Whitecapâ€™s clients have included banks, building societies, technology providers, outsourced service providers, FinTechs, retailers, universities.
Easy-to-integrate end-to-end Open Banking solution
Granular categorisation and insight engine
Purpose-built solution for affordability and creditworthiness
FinTech strategy consulting
Open Banking opportunity mapping
FinTech partnership strategy
Want to see your company listed here? Contact Adam at email@example.com or call 020 7993 5159 49
The races to be won
oday, 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 this year, the landscape will change. A number of successful businesses have been built on screen-scraping, where the customer gives 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. 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, 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 idiosyncrasies, availability and performance of the APIs delivered by the CMA9 banks make this a tough process – 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. Their APIs pre-date the specifications developed by the Open Banking Implementation Entity and are, in their view, far richer. 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 highestperformance APIs; serving the richest, most valuable data; enabling the most hyper-personalised, predictive and pre-emptive services to be delivered. 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. 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. 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. Paying a specialist Open Banking gateway company leaves you free to focus on your raison d’etre: serving your customer. Smart investors will place their Open Banking bets in these three races. ■
“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).”
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.
Dr Louise Beaumont Chair, Advisor & Investor
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