Lateral Thinking: Pngme — Open Banking Interview
- What are the most promising Open Banking use cases and propositions?
At Pngme we’re specifically interested in how open banking is driving the development of insights which, in turn, is powering credit scoring and underwriting for financial institutions.
The standout promise of open banking is increased access to financial services, and the ability to tailor those services to the consumers’ needs.
Comprehensive insight into a person’s financial history is what will ultimately allow banks to more dynamically serve their customers. All of the components of open banking lead back to that core promise of increased access to financial services whether it’s interbank settlement services, cross-border payments, or consumer data monetization models.
2. In your opinion, who are the biggest proponents of open banking and the liberation of consumer data in your market? At the same time, are there any parties throwing up barriers or hoping to maintain the status quo?
Fintechs and neobanks that require access to user-permissioned data are the largest proponents of open banking alongside advocacy groups like Open Banking Nigeria, CGAP, and FDATA. These advocacy groups bring together fintechs and banks to collaborate on what standardization and frameworks should and could look like. They recognize the opportunity to deliver on the aforementioned promise of financial inclusion and are playing a crucial role in advancing adoption.
Traditional banks face the starkest transition but also stand to gain the most, making them either eager to evolve or reticent to transition to open banking depending on their adaptability. There are two reasons for this:
- Banks traditionally have relied on the competitive advantage of owning their customers’ data.
- Banks actually only own a fraction of their customers’ data because most people in African markets are multi-banked and use a high number of financial wallets, fintech apps, and other services. The true insights that will aid underwriting come from the data acquired in the Venn diagrams of the various financial touchpoints that provide malicious loan stacking information, loan hopping information, 360° views of debt-to-income ratios, etc. These insights are lost without an open architecture.
Thus, for banks, open banking relinquishes a sense of supposed data ownership but allows the bank to become highly innovative with acquisition and with ways to increase value throughout a customer's lifecycle.
Ultimately, a better understanding of a customer or market is more powerful than data ownership. This shift in perspective is currently creating as much resistance in banks as it is acceptance of the opportunity; a double-edged sword.
At Pngme, we aim to make the transition to open architecture and user-permissioned data access as easy as possible for banks. Standardization of APIs and data access will allow data science companies like Pngme to thrive, as the cost of data acquisition becomes cheaper and more widespread, our inputs will only become greater at lower cost and our outputs will become more valuable as they power more use cases.
3. How should the industry approach open banking in order to meet its promises and what new use cases are around the corner?
Open banking should be treated as consumer-directed banking or consumer-led banking. If open banking is customer-focused, it should not be limited to exposing one-way APIs in order for third parties to access permissioned general account data on customers as we see with open banking in other nations. Open banking should not be:
- Used as a defensive tactic for banks to counter backlash for being slow to the market compared to other jurisdictions.
- Viewed as the pursuit of common API structures to reduce data risk and liability caused by third-party screen scraping companies.
Many forward-positioned countries are already talking about the next evolution in open banking, referred to as ‘open finance’. Open finance is a consent-based framework that expands the options for consumers including savings, exposing bank KYC and AML attestation, mortgages, insurance, and credit, all at competitive, free-market costs.
If you look to RSA’s Financial Sector Conduct Authority (“FSCA”) as a bellwether, it defines open finance as a two-way service ecosystem beyond screen scraping APIs, including:
- Two-way APIs that ensure interoperability, efficiency, and usability for all participants in the open finance value chain should be the standard mechanism for data sharing in the open finance context
- Open commercial models that ensure financial service providers share consumer financial data with third-party providers at no charge, with the commercial basis for doing so being left to the discretion of the relevant parties.
The FSCA also recommends key ways of standardizing and codifying consumer-focused mechanisms such as consent, customer protection, and dispute mechanisms. The key here is the protection of data, by addressing data misuse and breach, and instituting a liability framework that holds financial service providers and third-party providers accountable.
These structures make sure that there is a level playground for innovation as opposed to using customer data protection as a smokescreen.
4. What is your core value proposition and how does it:
a. Change the relationship between banks, fintechs, and customers?
Pngme offers financial institutions a fast track to incorporating rich financial data into all aspects of their businesses. By enhancing the insights and decision-making capabilities of financial institutions, we are effectively breaking down the barriers between banks and fintechs. In order for any financial institution to remain competitive, they need to access and understand data. We effectively give banks the ability to offer fintech services (become a neobank) and we offer fintechs the ability to utilize additional data and insights that will power their existing services and create new ones. The outcome for consumers is greater financial access and better products tailored to their needs.
b. Cater to the new wave of fintechs and neobanks? What new business models does it enable?
We allow financial institutions to access and understand previously inaccessible customer data. This eliminates data monopolies and allows neobanks and fintechs to compete on quality of service, not the quality of data, which only drives value for the customer.
5. How are you unique in the open banking space across Africa and other emerging markets?
We are building insights and machine learning-as-a-service to power multiple financial decisioning use cases. What makes us unique is not just the volume and comprehensiveness of the data that these services are built on, but also the structured and organized way we approach integration. You can test Pngme’s data in a sandbox environment for free, then implement the SDK in your app with just 3 lines of code. We offer high-quality data with high coverage and a scalable, fast integration via a self-serve portal.
6. If you could change one external factor that would accelerate your company’s growth, what would it be? Examples include regulatory oversight, consumer expectation/trust/attitude to open data, the proliferation of tech (smartphones, etc), or the attitude of decision-makers at incumbent banks.
If we could change one external factor impacting our growth, we would further accelerate the proliferation of mobile-based technology. Mobile-based technology is our means of reaching new customer segments and further digitizing financial services. Our technology reaches new customers through the ability to access their data through an application. The number of smartphone connections reached 302 million in 2018; this will rise to nearly 700 million by 2025, an adoption rate of 66%. This illustrates the incredible trajectory but also the untapped potential of our services.
7. Where do you see convergence/divergence in the next 5 years given the amount of funding going into this sector?
It depends on the success of the non-bank and alternative bank sectors as this will dictate how much pressure regulators and government will feel to advance open financial solutions. This of course is a challenge, as open finance is one of the factors that will propel the sector. However, the walls are crumbling between incumbent and new, or “challenger” financial services.
Challenger banks differentiate themselves primarily in two ways: digital experience and lower fees, which of course, go hand in hand. One of the only buttresses for incumbent banks was their data lake. In North America, it costs $2–4m to open a bank branch and half a million per year to maintain it. Challenger bank, Chime in the US utilizes a model where users can make free cash deposits at any Walgreens. Walgreens has roughly nine thousand retail locations across the US. That’s 2x the number of branches of America’s largest retail bank, Chase. These savings are passed on to consumers by removing fixed fees.
Additionally, while lines are blurring between banks, neobanks, and fintechs, there is still a difference in consumer perception between the sectors. While West African banks have pushed into digital service, many have buggy mobile banking apps and poor customer service. Kuda and Piggyvest offer a superior customer experience. On the flip side, customers that open a Kuda or Piggyvest account hold on to their incumbent bank accounts as many are keen to remain customers of their bricks and mortar banks. These customers remain hesitant to transition to 100% digital banking. This transition phase will force incumbent banks to up their digital service offerings and for digital banks and fintechs to gain consumer trust.
8. What are your top 3 predictions of how the African fintech ecosystem will develop over the next three years? Please answer this in the context of open banking.
- The obvious prediction is increased access to credit for ‘thin-file’ customers due to improved access to financial data. This will connect banks to invisible primes and drive financial inclusion
- There will be an increased ability to provide Finlit and Credit Karma type share-of-wallet services via open data. This will provide a single view of accounts across different banks, which will give visibility to spending patterns and ultimately allow consumers to budget and save more effectively.
- Consumer-focused regulation will drive more confidence into the market as bad actors are better identified and good actors are nurtured towards prime by all stakeholders.
9. What are the necessary steps to fast track stakeholder buy-in and the movement for the adoption of open banking in the main SSA markets i.e Nigeria, Kenya?
As indicated, pressure comes from success. The more challenger banks and fintechs can drive volume and manage customer success through best-in-class end-to-end core banking services, the more regulators and government stakeholders will be required to standardize the way these customers are serviced. Once opened, the flood gates are difficult to shut.
