The beginner's guide to Open Banking
If you’ve been listening to the news at all in the last few months, you’ve likely run across the term Open Banking – a lot. The internet is awash with articles, thought pieces, blogs, books and podcasts on Open Banking. It’s a full-time job keeping up with the latest trends and following the right people. That’s why at 11: FS we’ve put together the authoritative resource on Open Banking. Whether you’re new to Open Banking or a bonafide guru, we’ve cut through the noise to bring you the go-to guide.
What Is Open Banking?
For some time the UK government has been looking at how new financial service providers can enter the market as well as how to encourage the development of new financial products and services to provide more choice for customers. Following an investigation into supply of the UK retail banking market, it was concluded that there was a significant need to improve competition in the market. It was clear that the incumbent banks in the UK did not have to compete hard enough for customers because new market entrants found it difficult to grow and compete.
To change the status quo and improve competition and efficiency while stimulating innovation in the market the Open Banking initiative was introduced. Open Banking intends to make it possible for third parties to access customer data held by banks by compelling the UK’s largest banks to make such data shareable in a secure, standardised form to registered third parties. Before Open Banking people could access and download their bank statements from their providers, but sharing them with any third party in machine-readable formats (that computers can understand) was not as easy. Bank product information may be published on a bank’s website, but gaining access to well-structured data for anyone wishing to use this information to create a service – as businesses in the fintech community do – was cumbersome. Open Banking intends to change all that.
How is this all made possible you may be wondering? The technology that is making open banking possible is called APIs. APIs – or Application Programme Interfaces – are technology that allows banks and other companies to conveniently and securely share data between their organisations. We use services built using APIs all the time. For instance, Uber uses APIs to ‘glue together’ Google maps, payments and telephony in one useful app to help people order and pay for taxis quickly.
Open APIs will empower a customer to direct their bank to send their personal data to another provider or to initiate a payment directly from their bank account. It promises to level the playing field by encouraging the development of personalised propositions, which will encourage account switching, as well helping new players build services more cheaply and efficiently. Open banking is set to redefine the banking landscape into a more competitive, innovative and user-friendly space.
Open Banking’s data sharing requirements present an opportunity to the fintech community because consumer transactional data provides insights into their spending habits that are not being used by banks to give customers services they want or need. Many banks lack the back end capabilities thanks to their complex legacy IT systems and inadequate data architecture to make the most of user data. The precious information passed on by banks at the request of the customer can be used by the third parties to create new intelligent products catered to individual needs that better serve the interest of the customer.
We’re super excited by the potential Open Banking has to facilitate the creation of some awesome products that can make a difference to people’s lives. To continue learning about this topic we’ve put together a few resources on the subject that we hope you find useful.
Rowland Manthorpe of Wired explains what the big deal is about open banking in an introductory primer describing how it has the potential to upend the way we bank.
Iain Withers of the Telegraph explains the ins and outs of open banking, describing how incumbent banks will now have to fight to keep hold of customers and up their game.
If you are looking for an extensive overview of open banking then Faith Reynolds report should be high up on your reading list. The gist of Reynolds’ personal consumer facing view is that the time has come for financial services to provide something the customer wants, needs and deserves.
In this report, the open data institute outlines why open banking standard was introduced and most importantly, how it can provide better services for consumers and unlock new sources of innovation for challengers to develop innovative products.
Starling Bank does a stellar job of explaining what Open Banking means on an everyday level and how it will impact the way we see money.
The Threat of Disruption
The landscape of the banking battlefield has fundamentally changed in the past few years. The platformification, or bundling together of new products and services on one platform from different providers, of financial services has been driven mainly by new fintechs and challenger banks is changing the dynamics of the banking battlefield. Incumbent banks are being attacked from all sides by the products and services produced by these new challengers and non-financial digital players. Customers have rising expectations to what services banks should offer. It could not be a more volatile or exciting time to be looking at banking.
Open Banking will play a big part in the shift away from rigid product lines to the delivery of truly digital propositions. By digital proposition we mean…
- A product that operates in real time. Today signals can travel the globe in milliseconds meaning customers should be able to receive instant feedback, offers, rewards, and actionable insights. In turn, this provides a way to influence and inform customer behaviour through positive and negative feedback.
- We are carrying around supercomputers connected by near-ubiquitous networks to massive data centres that can process transactions and data in the blink of an eye. Digital propositions put that to work for the customer’s benefit.
- A product that is contextual to who you’re with and what you’re doing.. Are you in the airport getting on a plane? Shall I activate some travel insurance for you sir? Are you getting a late train home – should I organise the usual taxi madam? You’re looking to transfer some money, is it the money you usually transfer to your joint account – Do you want me to automate that for you next month? Context is king and creates real magic.
- The best digital designs and applications need to feel human. Empathetic design, anticipating needs, the tone of voice, and connection with real people, make it as far from an ATM experience as it could be. In effect, for financial services we are building the equivalent of a virtual private banker for the mass market, and it should feel like that.
Open Banking is the force driving the unbundling of banking products from one provider, where customers’ account data can be plugged into an increasing number of platforms that help people better manage their financial lives.
The threat of disruption, certainly in the early phases of Open Banking, comes from disintermediation. Those providers with a focus on a platform banking strategy can use the data from Open Banking to deliver end-to-end experiences that help customers get those all crucial jobs done quicker, easier and smarter. The bottom line is that your bank account or credit card provider becomes much less important because the customer relationship is owned by the provider delivering the experience to the end user.
Startups have led the way in designing propositions ahead of Open Banking officially going live. However, incumbents are not blind to the opportunity and are investing heavily in developing propositions for truly digital experiences, rather than just digitising their analogue products. The question is: can the fintechs and challengers get distribution before the incumbents realise the innovation opportunity?
Finally, while the changes introduced by Open Banking are meant to encourage comparison and bank account switching, some think an unintended consequence could be tech giants like Google, Amazon, Facebook and Apple (GAFA), entering the fold. These big tech providers have a lot of customers and sophisticated technology, alongside a huge amount of customer data which gives them the capacity to start providing peripheral digital banking services.
David Birch lays out a future scenario where banks may be soon waving goodbye to payment revenues and the data that comes along with it to the tech giants.
Martin Moeller of Microsoft provides a detailed analysis of the threat GAFA pose as they line up to take their share of the revenue rich parts of the banking value chain.
The comprehensive report from Citibank provides the ABC of digital disruption in finance. Providing a detailed analysis and case studies of how the fintech challengers are impacting the banking business model and revenue streams.
The Economist – The Disruption of Banking
Fintech upstarts and tech giants are bashing down the doors and looking to steal profitable product lines. In this report, senior personnel from fintech and banks were interviewed to discuss the strengths and weaknesses of their competitors and where they see the banking landscape in 5 years.
Jim Marous makes the point that analytics, A.I, and cloud computing are three capabilities that are becoming critical to competitive differentiation in banking. Financial firms are having to rely more and more on GAFA to provide these core function providing an opportunity for tech companies to pick and choose entry points into financial services.
Will Customers use Open Banking?
Whether or not customers will adopt Open Banking largely depends on two things:
- How relevant are the propositions created by third party providers using Open Banking to customers?
- How will these third party providers foster trust with customers, encouraging them to share their highly sensitive financial data?
So far we’ve seen lots of innovation in personal finance management services that aggregate customers’ data from multiple providers in one place, and cards that help customers pay from multiple accounts. This just scratches the surface of what is possible. For Open Banking to be widely adopted, third-party innovation efforts need to focus in on those crucial Jobs To Be Done faced by customers in their everyday lives. A Job to be Done is the process a consumer goes through whenever they aim to transform their existing life-situation into a preferred one, but cannot because there are constraints that stop them.
Consumers want greater visibility on short-term day spending, month-to-month bills, and longer-term goals for investment, such as university or retirement, and that is without touching upon people who run businesses. New services made possible by open banking need to align technology with customer wants so they can better meet their financial goals in a more passive and ambient way than was ever previously possible.
While the creation of new intelligent services will drive appeal, trust will be the currency that converts that interest into adoption. Trust can take years to build but only seconds to break. Does this mean the incumbent brands have an advantage or are technology platforms distributing trust out to people and brands going the extra mile to deliver a great experience?
Louise Beaumont makes the point that fintechs will need to communicate the exchange of value that is taking place effectively the value of the data consumers are sharing, and the value of the benefits they will receive in return.
Consumer trust in open banking is critical for it to take off and become accepted. The annual trust barometer report provides insight into societal trust in business, government and NGOs.
Patrick Collinson (@pcollinson) – Open banking? I think I’ll be keeping my door shut by Patrick Collinson
Patrick Collinson touches upon the fears that many consumers may have when letting an app access their data. Fears of ‘hackers’ and ‘fraudsters’ create a significant barrier of trust that must be overcome before Open Banking can go mainstream.
Botsman explains how we have lost trust in key institutions. With the rise of platform-based digital brands, technology has distributed trust and influence out to people, friends, family and even strangers. She explores how trust is built in a world where humans will increasingly interface with bots, AI and connected personal data.
Chris Skinner provides an overview of the contrasting opinions of Open Banking in the press. He points out that much of the mainstream media has greeted the launch of Open Banking with fear and scaremongering.
Every type of business is becoming a tech business. The digital transformation of financial services is an excellent example of the broader shift happening across a variety of sectors. Open Banking along with the platform strategies of fintechs are unbundling traditional financial products. Financial services are now being stitched back together around important jobs to be done creating much more valuable and intelligent experiences for customers. This manifests itself in two fundamental ways:
- Interoperability. Just like I can share and access Google Docs in Slack, the API standards created by Open Banking will mean you’ll be able to view your account information in third-party services. The benefits of making financial products interoperable and customer data portable implies that new customer propositions can be designed to deliver end-to-end experiences rather than rigid products.
- Automation. When customers have a clearer picture of their total financial position, automation rules can help reduce the complexity and time spent on decision making processes when managing everyday finances. For example, customers can set up transactions to a savings or investment account when certain conditions within their overall financial life are met. Through these rules, people can better meet their financial goals in a more passive and ambient way than was ever previously possible.
Open Banking is part of a broader trend connecting customers, businesses and devices in the shift towards the internet of things and people. With greater connectivity, intelligent services and automation can create great conveniences in life. However, they are also shrouded in more complex issues of security, privacy and control as humans and technology become more intertwined. In the following section, we’ve provided a reading list to help you get to grips with API’s and how people are now innovating with them beyond financial services.
16z bring on guests who are currently building the API economy sharing their insights on what people are now doing with API’s and what it means practically for innovation now that companies have new superpowers to scale.
Nordic APIs (@nordicapis) – The API economy: Disruption and the business of APIs
The ebook covers the growth of APIs and the new breeds of businesses that are evolving across not just the finance sector but many different verticals. Providing an in-depth analysis of how this movement is unfolding.
Martin Casado provides a short video explanation of the API economy. He does a great job of outlining how API’s are underlying an enormous shift in the technology industry, changing the way we think about programming and how we think about innovation.
Matt Murphy and Steve Sloan document the proliferation of third-party API companies. Highlighting what this now means for developers and how it can be a game changer by enabling companies to develop their products faster, cheaper and smarter.
Leonhard examines the risks of upgrading humanity and automating everything. He asks questions like: “How do we embrace technology without becoming it?” The book provides a long-term view of the benefits of technology with a critical eye.
Top Experts to Follow
To stay abreast of the latest developments in Open Banking we’ve compiled a list of key people in the industry to follow. These are the key people you need to follow stay up to date with the digital banking landscape.
Jason Bates @JasonBates
Jason is Co-Founder of 11:FS. Jason previously Co-Founded Monzo and Starling – two new digital retail banks in the UK – where he led product proposition: researching customer needs, designing the app, recruiting a world class team, and defending regulatory submissions to the UK regulator. Jason has firsthand experience of what creating a next- generation bank from scratch really means.
David Brear @davidbrear
David is CEO and Co-Founder of 11:FS. Named amongst the top 100 Most Influential FinTech Leaders of 2016, he’s one of the most recognized and influential people in financial services. At Lloyds Banking Group and Aviva, David delivered large-scale digital transformations, then led Gartner’s Global Digital Banking practice before founding 11:FS
Ryan Garner @RyanGarner
Ryan is head of Insight and Innovation at 11:FS and has over 13 years’ experience working in customer insights and product strategy. He is an experienced Jobs-To-Be-Done practitioner, helping innovators grow their business by aligning their products to what customers want. He has worked with leading tech companies (Google), challenger banks (Tandem) and was part of the leadership team that launched a personal data platform (CitizenMe).
Simon Taylor @sytaylor
Simon is Co-Founder and Blockchain Lead at 11:FS. Previously at Barclays, he established the bank as one of the leaders in blockchain thought and action. Simon also serves as an advisor to central banks and governments, in addition to consulting the top 20 banks on blockchain. He’s helped a variety of startups flourish through the Barclays Accelerator.
Chris Skinner @Chris_Skinner
Chris is a non-executive director at 11:FS. Chris Skinner is known as an independent commentator on the financial markets and fintech through his blog, the Finanser.com, as author of the bestselling books Digital Bank, ValueWeb and its new sequel Digital Human.
Leda Glyptis @LedaGlyptis
Leda Glyptis is the Chief Innovation Officer for Qatar National Bank. Leda joined QNB, the largest bank in MENA, in January 2017 with responsibilities for employee-driven and market-led innovation strategy and execution. Prior to QNB, Leda served as a Director at business and technology consulting firm Sapient, focusing on digital transformation, emergent technology and changing value chains.
Tom Blomfield @t_blom
Tom is the CEO and founder of Monzo and previously founded GoCardless, a fintech startup that has gone on to raise $25m. In 2013, he was nominated as one of the Top 5 Entrepreneurs Under 30 by the European Commission. He gives talks regularly about the future of banking and fintech.
Anne Boden @AnneBoden
Anne oversees the Executive Leadership Team and focuses its vision on building the best possible customer experience. She is also a member of Starling’s Board of Directors. Anne started her career at Lloyds Bank, where she helped architect CHAPS, the UK’s first real-time payments system. She worked at Standard Chartered and UBS, before becoming Head of EMEA, Global Transaction Banking across 34 countries for RBS and ABN AMRO.
Monty Munford @montymunford
Monty Munford is a tech journalist, author, and part-time film actor. He is also the founder of Mob76 Outlook. Mob76 is the 54th most influential blog in the UK and is read by a gamut of VCs, investors, publishers, entrepreneurs, mavens, influencers and broadcasters.
Megan Caywood @MeganCaywood
Megan Caywood is Chief Platform Officer at Starling Bank, a leading challenge bank in the UK. Prior to Starling, she was a product leader in financial technology in San Francisco. She moved to the UK on a Tier 1 Exceptional Talent visa in 2016 to help start Starling, and has since been named on Forbes 30 under 30.
Jim Marous @JimMarous
Named as one of the most influential people in banking and a Top 5 Fintech Influencer to follow, Jim Marous is an internationally recognized financial industry strategist, co-publisher of The Financial Brand and the owner and publisher of the Digital Banking Report. Marous advises on innovation, portfolio growth, customer experience, marketing strategies, channel shift, payments and digital transformation within the financial services industry.
Spiros Margaris @SpirosMargaris
Spiros Margaris is a Venture Capitalist and Thought Leader in the FinTech and InsurTech scenes. He is a frequent speaker at international FinTech and InsurTech conferences, and Spiros publishes articles on his innovation proposals and thought leadership.
Chris Gledhill @cgledhill
Top global FinTech Influencer, Technologist and Digital Nomad, Chris is on a mission to reinvent banking. Former lead of disruptive innovation labs at Lloyds Banking Group, Chris is now CEO and co-founder of reputational-economic startup Secco. Chris regularly speaks and blogs about financial services and is considered a thought leader in FinTech.
Oscar Williams Grut @OscarWGrut
Oscar is a senior reporter in London. He writes about fintech and retail, as well as occasionally straying into more general business, markets, and politics. Prior to joining BI, he worked for the London Evening Standard and Independent newspapers as their stock market reporter and before that covered London’s technology scene for the papers.
Jonas Huckestein @jonas
Jonas Huckestein is the CTO of Monzo and creates great products from scratch. After moving to the US from Germany in 2010 he was the first engineer at Campfire Labs (acquired by Groupon), founding CTO of Ark.com, and is a Director at the StartupBus.
Sarah Kocianski @SarahKocianski
Sarah is a principal analyst at 11:FS. Prior to joining 11:FS she worked at Business Insider as a Senior Research Analyst covering Fintech. Prior to joining BI Intelligence she worked at a global technology company, specialising in working with Financial Services.
Ali Paterson @AliPaterson
Editor responsible for production, content and publication of Fintech Finance Magazine, looking at everything in Financial Services, from Cash Management to Regulation, Fintech Start-ups to Branch Design.
Valentin Stalf @valentinstalf
Mr. Valentin Stalf is the Co-Founder and Chief Executive Officer of N26. N26 is now one of the fastest growing banks in Europe, with more than 850,000 customers in 17 countries. Mr. Stalf has worked in a number of fields including Strategy Consulting and Investment Banking/Mergers & Acquisition. After graduating, he joined the Internet Incubator Rocket Internet as Entrepreneur in Residence and was involved in building different companies.
Gavin Starks @agentGav
Gavin was the CEO at the Open Data Institute. On behalf of HM Treasury, Gavin co-chaired the development of Open Banking Standard, leading banks, trade associations, startups, regulators and consumer rights organisations to help create the new regulation.
Claire Calmejane @ccalmeja
Calmejane is charged with harnessing digital innovations and disruptions to best suit Lloyds’ 30 million customers and 50,000 employees. The computer engineer joined the bank in October 2012 as head of digital delivery and became head of the digital centre of excellence, innovation and partnerships in 2014, helping to devise a strategy to digitise a large corporate bank. She is a lecturer at MIT, UCL, Oxford and Imperial on Fintech.
Sir Timothy John Berners Lee @timberners_lee
Sir Timothy Berners-Lee has promoted open government data globally and is a member of the UK’s Transparency Board. He was named as co-director of The Open Data Institute, with Prof Nigel Shadbolt in November 2011. Sir Tim Berners-Lee invented the World Wide Web while at CERN the European Particle Physics Laboratory, in 1989. He wrote the first web client and server in 1990.
Top Companies to Follow
Monzo was set up for people who live life on their phones and see no need for a network of brick and mortar branches. Features include a newly-launched current account, real-time transaction notifications, budgeting and savings functionality (known as “Pots”), auto-categorisation of transactions, and a freeze/unfreeze feature for that “where’s my card” moment. Founded in 2015 (when it was known as Mondo, prior to a trademark dispute), the London-based start-up has frequently attracted fresh funding of more than $71 million for its digital-only offering. As of January 2018, Monzo has been valued at £280 million. Founder Tom Blomfield sees Monzo as the first bank to fully leverage the network effect of the internet, and with close to 200,000 current account customers and a crowdfunding campaign that famously raised £1 million in 96 seconds, it’s easy to see that their viral growth model is working. Monzo was granted a full UK banking licence in April 2017 by the FCA, and operates a current account Mastercard that connects to iOS and Android apps.
Signing up for a Starling current account via the iOS or Android app requires a simple photo of the user’s passport or driver’s license. In a matter of days users receive a fully functional card that can be used in the UK and abroad – wherever MasterCard is accepted. Notable features include biometric security based on a short user-recorded video message and slick spending analysis, but the stand-out features are the fantastic “goals” saving feature, and the growing “marketplace” of additional financial services based on an API-driven adherence to PSD2. Existing partnerships with Flux, Tail and MoneyBox showcase Starling’s appetite for further integrations. In the future the challenger hopes to expand API partnerships into “lifestyle, retail and wellness products”, we’re excited to see how the marketplace will develop!
Beginning with a friends and family release in 2016, Amsterdam’s Yolt, with the support of ING, rolled out the first iteration of their PFM tool, with strong categorisation and tagging, which means that looking after money is really easy for Yolt customers. It has a Daily Insights function, which keeps customers up-to-date with upcoming direct debits; swish aggregation functionality and an ability to constantly monitor bills and subscriptions; and a payday countdown.
Yolt is easily one of the best fintechs on the market. Banks and fintechs are often at their best when they work together, and, with ING and Yodlee both on board, we look forward to seeing what the future holds.
London-based Chip is an automatic savings app that’s backed by angel investors. It’s free to use and their website playfully goads users to “Stash money away automatically without feeling it”, encouraging people to save for a rainy day or big life events, rather than pay for them by relying on debt. Chip was launched in October 2016 by founders Simon Rabin and Nick Ustinov, who previously founded Roamer, which is an app delivering cross-border phone calls using wifi to extinguish network charges.
Chip works by the user authorising the app to have read-only access to any current account held by the big name UK banks. From the user’s current account spending data, the app’s algorithm works out how much the user can afford to save and then puts that aside automatically, and a chatbot takes care of common queries. Underneath the branding, the Chip account is a Barclays E-wallet cash account, and users receive a one percent commission for inviting a friend to open an account. A psychologically effective feature of Chip is that users can set savings goals.
By aggregating most common financial products in a single interface, Bud’s consumer product is designed to provide a more holistic view of an individual’s financial affairs, regardless of the type of product/service, provider or institution. Launched in September 2015, Bud’s consumer product is UK only. The service allows users to view an aggregated balance across accounts and provides functionality to search and/or categorise spend and identify patterns.
Free to users, Bud’s business model is to provide recommendations for products/services that can help a customer save money and take an affiliate like commission from the provider, making it part finance dashboard, part marketplace. Each user is treated to a personalised feature called Market+ where service recommendations are made and a user can also select providers to add.
More recently, Bud has been involved in a number of partnerships with the likes of First Direct as part of a B2B pivot.
To find out more about Open Banking and fintech be sure to check out our blogs and podcasts. Every week we cover the best stories and speak to the biggest names in fintech.