B2B Payments

FinTech Follows Open Banking As It Spreads Across Borders

The U.K.’s Open Banking regulation made waves in the financial services market, and those effects have been felt far beyond the U.K.’s and even Europe’s borders. Six months after the legislation took effect, the market is finally beginning to iron out the kinks and stretch its muscles to explore how the legislation can be applied in various ways. Now, banks and FinTech firms around the world are exploring the possibilities of an open banking market.

That includes Trade Ledger, a company that offers banks a digital platform to analyze supply chain data and underwrite trade financing to small and medium-sized businesses (SMBs). The company recently announced its launch in the U.K. in an effort to take advantage of Open Banking rules, which CEO and Co-founder Martin McCann said offer an opportunity for the company to expand its use of artificial intelligence (AI) and machine learning, to enable financial institution (FI) clients to understand and assess the creditworthiness of their SMB clients.

Trade Ledger’s solution seems like an obvious fit for a market in which Open Banking is a reality. Indeed, McCann recently told PYMNTS that he considers Open Banking to be “the single biggest technology-driven innovation to happen in the banking sector anywhere in the world, outside of China.”

However, as an Australia-based company, Trade Ledger’s focus on the U.K.’s Open Banking initiative signals opportunity for the data-sharing business model to expand outside of U.K. borders, particularly as industry players begin to explore how the open banking model could disrupt business financial services as much as consumers.

“We’re seeing very concentrated interest and investment opportunities here [in Australia] in how to digitize and innovate the corporate banking area,” McCann said.

The current Australian banking and financial services ecosystem may be ripe to embrace open banking, with several possible reasons why. Today, Australian FIs are facing increased pressure from regulators, especially when it comes to small business banking and lending. In May, the nation’s Big Four lenders offered testimony as part of a Royal Commission inquiry into small business banking, and all four admitted to wrongdoings related to their SMB lending practices.

However, regulators’ recent crackdown is only the latest in a long period of government pressure on the industry, which many jurisdictions around the world have felt since the 2008 global financial crisis. According to McCann, that means Australian FIs have been forced to spend time and resources on compliance efforts instead of product innovation.

“It’s hard for [the banks] to focus on customer innovation they appear to perennially be in catch-up mode to keep up with legislation,” he said.

What this has done is opened the door for bank-FinTech collaboration. FinTech firms like Trade Ledger can have cutting-edge technologies and platforms ready for deployment, meaning banks can more efficiently introduce digital services to their customers. Banks’ willingness to collaborate with FinTech companies in this way also sets the stage for open banking to take root, particularly in the corporate lending market, McCann noted.

That doesn’t mean that an open banking initiative in Australia would mirror the U.K.’s experience exactly, however. According to McCann, one reason is because the drivers for opening up and sharing data in the financial services market are different in the U.K. than they are elsewhere: In the U.K., the 2008 financial crisis led to the need for greater competition in the banking sector, and new ways to bridge businesses with financing as banks adhered to more stringent capital requirements. In Australia, though, the impact of the global financial crisis was less acute, he said, though competition and regulatory pressure means Australian FIs are not immune to the need to innovate and improve services.

Furthermore, McCann noted, while Australia is reforming data security legislation, the country enacted the Privacy Amendment (Notifiable Data Breaches) Act 2017, which came into effect in February. Different regulations around banking and customer data inevitably mean that markets like Australia cannot have an exact copy of the U.K.’s Open Banking rules at play. The market is set to embrace something that looks quite similar to it, however, and McCann believes this will happen within a few years.

Australia isn’t the only one, either. He recently participated in the Australian British Chamber of Commerce’s Australian British FinTech Cyber Catalyst (ABFCC) delegation, held earlier this month, which connected U.K. and Australian financial services leaders. There, he spoke with players in the U.K.’s Open Banking community, and experts short-listed 12 jurisdictions that are closely watching Open Banking in preparation to adopt a similar model. They include other EU member states, including Germany and some Scandinavian markets, McCann said. Non-EU possibilities include Australia, Mexico, Canada and the U.S. — though, McCann noted, the U.S.’s open banking shift is unlikely to see regulation as its catalyst.

For Trade Ledger, that means watching these markets closely and gearing up to expand geographically as data sharing between banks and FinTech firms becomes the norm. But beyond the movement of data, he said, the firm is also closely watching how open banking models support the adoption of technologies like machine learning, AI, and, perhaps later on, blockchain.

“This space is going to accelerate in terms of innovation this is only the starting point,” McCann said of open banking’s impact on the financial services sector. “Next year will be the year when we see the winners and losers, and there is the potential for massive change over the next five to 10 years.”

Open banking isn’t just spreading geographically, either, he continued. The model has the potential to affect sectors outside of financial services.

“This is ultimately going to lead to massive shifts in productivity and innovation across all industries, even beyond banking,” McCann said.


New PYMNTS Study: Subscription Commerce Conversion Index – July 2020 

Staying home 24/7 has consumers turning to subscription services for both entertainment and their day-to-day needs. While that’s a great opportunity for providers, it also presents a challenge — 27.4 million consumers are looking to cancel their subscriptions because of friction and cost concerns. In the latest Subscription Commerce Conversion Index, PYMNTS reveals the five key features that can help companies keep subscribers loyal despite today’s challenging economic times.