Open Banking #Finimized: ‘What it Means For You’
Last Tuesday 200 of you joined us in Shoreditch for our ‘Open Banking #Finimized’ event. Open Banking has now been live for 6 months but we are yet to see much impact. So we brought together three founders changing the finance industry to explain what Open Banking actually means for us.
During the event we had over 50 questions asked so we thought we’d summarise them below. Enjoy reading — add comments in the section below. Can’t wait to see you at the next event!
WTF is open banking? 🤷
Open Banking is an initiative to make it easier to move, manage and share your financial data, backed by the UK Government. Open banking forces the large banks in the UK to provide secure access of customers financial data via third parties.
In the same way that Uber uses Google Maps or Skyscanner uses airline data, open banking wants to enable new services to be built on top of your financial data.
Has open banking actually changed anything? 🧐
What’s are the teething issues with open banking? Is it a short-term issue or broader systemic problem? (Asked by Oli)
Plum: There are always teething issues with innovation. The fundamental problem with the way Open Banking has been implemented is that it has been forced onto the big banks. Open Banking is only as effective as its execution and unfortunately there is no real motivation for the banks to do it well. In fact, it is more the opposite!
Implementing Open Banking is also a much bigger job for these big banks. Banks are built on legacy systems unlike the challenger banks, like Starling. Releasing huge changes that will impact each and every customer also requires significant testing. It is easy to understand why things haven’t happened quickly but we are sure it will be worth the wait.
We have been hearing about marketplace for a long time but up to now there are very few partners. What do you think is the reason? (Asked by Marcelo)
Starling: We’ve got 8 partners and we’ve got an active pipeline of at least 80 further partners both for personal and business current accounts. If you think about it, it’s a pretty rapid development for a brand new concept and the rate of partnering will only increase going forward.
There’s been innovation in how we bank and invest but not the underlying product. Where do you see the innovation happening when it comes to the product? (Asked by Parm)
Wealthify: Whilst I agree that most innovation has been at the service level, I would argue there has been some at the product level. Crypto’s rise (and demise?) rightly or wrongly has been extremely well publicised. Unfortunately the strive for innovation can sometimes result in negative repercussions (like CDOs — Anthony Bourdain can explain). That started with corporate debt markets but moved onto sub-prime mortgage debt and eventually contributed to the financial crisis.
I expect open banking will be another enabler to drive a new wave of product innovation. Perhaps not this year or next, but in the medium to longer term, the entrepreneurs amongst us will, I’m sure, find creative uses for the rich streams of data about to be unleashed.
Who’s looking out for the customer? 👫
Can the user control the information shared? I feel uncomfortable sharing my bank information. (Asked by Anonymous)
Plum: We never share or sell your data, all sensitive information — like bank log ins — is done within secure web-views which means Facebook for example can not read them. Users connect Plum to their bank account in two ways: (i) read-only access to your bank account to determine auto-savings and insights (ii) a Direct Debit Mandate (like your phone company or gym membership) for the auto-savings.
Your bank login details are transmitted encrypted from the web-view at sign up to our server and is then forwarded to Yodlee, our aggregation partner, for further encryption and safe storage. Plum never actually see or store this information.
With Open Banking, who owns the customer relationship? What is the risk to customer data? (Asked by Brian)
Starling: Both companies are responsible for the customer relationship — it’s joint ownership. The important thing is that the data belongs to the customer and at Starling we believe that the customer should be the one to benefit from their own data.
Do new firms that use open banking have a duty to educate customers? (Asked by Anonymous)
Wealthify: I’m not sure that we need to educate customers on the technicalities of what open banking is. It’s essential for us in the industry to understand how it works and the impact it will have on our respective companies futures, but do we need to explain it to the customer?
When customers can see the clear benefit of sharing the data then I believe they will then understand the benefit of open banking.
Why did you pick Facebook Messenger as the platform for your customers to sign up? (Asked by Anonymous)
Plum: Messenger allows us to have a very different relationship with the end user, we wanted people to be able to ask questions and have a more conversational relationship with their money.
As we scale across different consumer segments and in the wake of the data concerns over Facebook, we are seeing demand for a platform outside of Facebook increase and it is something we are exploring. If we decide to take this route we want to get it right and ensure it adds to the Plum experience rather than being a bolt on which may take some time!
How are the traditional banks reacting? 🏦
What do you think of large banks setting up their own Fintech firms? Will, they successfully reinvent themselves or have they lost already? (Asked by Slav)
Wealthify: The advantages the big banks have is their ability to put massive resources behind a start-up and cross-sell to an already brand-loyal customer base. However, the disadvantages are speed of innovation, multi-layered decision-making and legacy systems.
A key success factor will be getting the proposition right and banks shouldn’t assume just by building a fintech brand, people will buy it. UBS’s withdrawal from the robo-investing market recently is a good example of this.
It may be for some large institutions that a quicker route to market is through acquisition of existing fintech companies, who can remain nimble and have independence over their decision making, whilst offering the institution a time and cost effective route to market.
Do you expect legacy banks to lobby in order to hinder the expansion of challenger fintech solutions? (Asked by Pablo)
Starling: No but we know that they’re watching what we’re doing very closely and trying to copy it. We’re also seeing legacy banks and challenger Fintech solutions working together.
Thanks for reading. Comments below ⬇️.
You stay classy Finimizers.
Michelle Sims, Community @ Finimize