Who cares about Open Banking?
Open Banking is an ever increasing sector. This month our blog, alongside NatWest, explores the emergence of open banking and its potential benefits and developments, as well as addressing key perceptions about the technology.
Who cares about Open Banking?
Sam O’Connor, Co-Founder and CEO at Coconut
A recent YouGov survey found that only 28% of UK adults know what Open Banking is. It’s a stat that doesn’t really surprise me because as a consumer we only really care about solving problems, not the mechanics of how that happens.
I’d find it hard to explain how video calling works for example, but I love chatting to my brother and his family in Colorado. Facetime is a great solution to my distance problem, but I don’t need to understand how it works.
And with Open Banking I’m very excited by the potential solutions. As Open Up prize winners, the Coconut team has been working on some super cool Open Banking features, particularly around tax.
But from what I’ve seen, the solutions might take a little longer to make a big impact. I thought I’d share some of the reasons why things have been moving more slowly than we’d have liked.
Banking systems are unimaginably complex and sprawling
One big bank I worked with in the past had 12 different systems holding records about one business customer. With no common identifiers between systems, the team matched the records up manually when the client called in many cases. This shows how the current IT infrastructure could prevent automatic data extraction. Putting an API on top without organising what’s underneath doesn’t help much.
This creates another issue: reliability of the APIs. If something goes wrong with the current live APIs, banks can take a while to resolve it because it’s sometimes unclear why it’s broken. Nine banks have released APIs so far and trying to manage them creates a big overhead for a startup. Once aggregation platforms mature, this problem goes away by creating one point of entry, but we’re a little way off Open Banking utopia.
Real-time banking is still a pipe-dream
One of our most subtle but beloved features at Coconut is real-time notifications. It fundamentally changes the experience. Customers can see which clients have paid them without checking their balance, or remember to capture a receipt when they spend.
Because big banks don’t present transaction data in real-time, this limits the experience of Open Banking. Until this changes, challenger banks will lead the charge on experience.
The magic will come with time
I’m optimistic about what Open Banking will do for customers in the long term. But in the shorter term I think challenger banks will play a decisive role in driving change first. The nuances of the smart banking experience like real-time banking and presenting data properly (including metadata) are what customers find really exciting and valuable in our experience, but they don’t form part of the scope of Open Banking.
Whilst the Open Banking rules have forced more openness when it comes to data, I think there’s a little way to go in terms of managing data and creating a real-time experience for customers. But when this does happen, we’ll see some incredible products as a result.
Startups to highlight
Coconut have created a current account for freelancers and self-employed people. They make it easy for users by estimating tax amounts and sorting expenses, freeing up their time.
Coconut are an alumni startup of our CASTS programme, having worked with our Accelerator partner Techstars.
Aptap are building a smart way to manage bills, so that users can see all their banks, bills and subscriptions in one screen. Users can cancel, sign up and share their bills with just one tap.
Aptap have announced their beta where users can sign up for free.
Bud is a financial network that connects all of finance together to facilitate interactions between companies and users.
They have just won a share of the UK government’s Rent Recognition Challenge, having been tasked with creating a simple way for renters to record and share their rent payment data, to help them improve their credit score. Bud, along with the other two winners CreditLadder and RentalStep, will use the funding to further develop their businesses.
Capital Enterprise have previously worked with Bud through our investment readiness programme, the Green Light Programme, as part of our CASTS project.
Flux are changing the world of receipts and loyalty cards: building a digital receipt data platform. With Flux, users receive full receipts automatically in their banking app as they pay with a bank card, as well as automatic loyalty stamps.
Flux have recently gone live with digital receipts on Barclays Launchpad.
Shieldpay are a secure and trusted money transfer platform. With online fraud as much as £11bn annually, and payments fraud increasing by 53% year on year, their mission is to eliminate all payment fraud so that everyone, everywhere, can transact with each other with total confidence.
When users transfer money, Shieldpay protects both sides of the transaction so that users’ money will go to where it needs to, securely.
Articles
A summary of open banking and the potential benefits it can provide to users.
Although open banking has become the talk of the fintech sector, studies show the majority of UK adults haven’t heard of it or aren’t aware of the potential benefits.
Research shows differences between age groups with likeliness of adopting new technologies, such as open banking.
A look at developments in the world of banking as consumer concerns about data security rise.
Events
RBS Disrupt 2.0 — Event Summary
Nick Slater, Investment Manager at Capital Enterprise and Principal at AI Seed
I was invited to RBS’s tech conference, Disrupt 2.0, the other week. It was an engaging exploration of the latest and most impactful tech trends; looking at where they are now and where they are going. The main focus was around AI, Blockchain (which they referred to as Distributed Ledger Technology, perhaps trying to move away from the uncertainty around cryptocurrencies) and Quantum computing. The technologies varied in use cases, with Quantum certainly seeming the most experimental and Blockchain as a “no-brainer”, yet still a bureaucratical pain to implement for banks such as RBS.
The speakers were first class and varied in their predictions with the more grounded opening keynote of Sir Tim Berners-Lee speaking of the importance of a privacy utopia for personal data to the cyberpunk prediction by physician and neuroscientist Divya Chander that humans will evolve into Cyborgs in the coming years.
One clear message that almost every speaker focused on is the idea of using this cutting edge technology for good, which can be easy to forget in the VC world where the exit return is often the biggest driver.
Special thanks to Sam O’Connor and Gracie Jones
