The U.K. is widely considered a leader in the implementation of open banking, the regulation mandated by the European Union’s Revised Payment Services Directive (PSD2) that compels retail banks in the region to make customer account information available to non-bank third parties through the use application programming interfaces (APIs).
Read more: UK Open Banking Reports 5M Users
To signal its widespread adoption across the country, the U.K.’s Open Banking Implementation Entity (OBIE) recently announced that more than 5 million individuals and businesses in the country use open banking services, a milestone figure following the fourth anniversary of the creation of the regulatory requirement.
But while it appears the U.K. is a long way ahead of other European countries, Andy Mielczarek, co-founder and CEO of U.K.-based digital bank Chetwood, said open banking in the country has been substantially below expectations since it went into effect in 2018.
“Open banking in the U.K. has been disappointing,” Mielczarek told PYMNTS in an interview. “If you look at Holland, for example, the permission customers have to give to access their data is way easier, whereas the early implementations of open banking in the U.K. have felt like a phishing attack.”
He added that while the customer proposition to offer personalized and relevant product and service as well as a much simpler and faster experience for customers is “brilliant,” the setup feels intrusive.
“It feels like I’m giving you access to my bank account, rather than giving you access to my data,” he said, referring to customer feedback they’ve obtained. He added that the integrations most clearing banks are willing to put into the market are substandard in terms of cost and the talent working on them.
That said, Mielczarek was of the view that regulation — and particularly the setting up of regulatory bodies like the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) — have been instrumental in the success of challenger banks in the U.K.
“We had a brilliant experience with them — they understood the business case, they were positive in getting us through and it only took [about] six to nine months to get a bank license [in December 2018],” he remarked. “That never would have happened five years before when we started, so I think that was transformational for the industry.”
Expanding BaaS Capabilities
Chetwood, founded in 2016, might not necessarily feature on the list of popular digital banks in the U.K. like Monzo, Revolut or Starling, but Mielczarek said it has built an effective partnership and product manufacturing business that operates several consumer-facing products under different brands.
In September of last year, the neobank rolled out a credit card, Wave, to serve an under-represented customer base with limited access to credit options. Prior to that, Chetwood launched a savings product, SmartSave, and a loan product, LiveLend, that uses advanced technology to reprice a loan as the customer’s credit score improves.
“In the loans business, we tend to be a mid-market, near-prime lender, because we lend to people who might get overcharged by mainstream banks,” he noted. “We work with digital partners to get them a better offer and [over 90%] of customers who get one of our loans get the best rate they see in the market.”
The U.K.-based challenger also provides product services to about 110 underlying partners and recently extended its Banking-as-a-Service (BaaS) and Product-as-a-Service business line by acquiring London-based technology company and core banking provider Yobota.
Related news: Digital Bank Chetwood Acquires Yobota to Expand BaaS
“Basically, what we do is to build digital products for a series of distinct customer segments, always driven by the best of customer service,” Mielczarek said. “What we’re not doing is to try and build a massive transactional bank under a separate brand that we then monetize later.”
As competition intensifies in the neobank space and incumbents begin to provide digital offerings that can compete with their products, Mielczarek said Chetwood’s technology and strategy of building micro-segmented services gives it an upper hand over these traditional banks.
“Big banks want to build a big bank that’s digital, and that’s not the same thing as building a digital business. The way that we use data would be completely foreign to those folks,” he said, adding that unlike traditional banks, “[we can] go from an idea to having something in front of the customer in days or weeks, which makes us a lot more effective.”
Sign up here for daily updates on all of PYMNTS’ Europe, Middle East and Africa (EMEA) coverage.