Open Banking And FinTech Firms: To Clash Or Collaborate?

Open banking in the United Kingdom is a bit more than a year old, fostering data-sharing by financial institutions and a collaborative mindset between financial services firms that might at first glance seem the fiercest of competitors.

And increasingly, for traditional finance firms, even the largest among them, eyeing smaller nimble tech upstarts can be a case of “If you can’t beat ’em, join ’em” and “Put your money where your mouth is.”

To that end, U.K. FinTech Bud said this past week that it had raised $20 million in funding through a Series A round. The investment came through a consortium of backers, including HSBC (whose First Direct is also a Bud customer) ANZ and Goldman Sachs, among others.

The firm’s platform, combining open banking data artificial intelligence (AI) and an online marketplace, makes a range of financial offerings from different financial service providers available through a single interface and app. Features span account information, financial goal tracking and bill payment information.

An interview between PYMNTS and Alan Walsh, Bud’s head of network and partnerships, revealed that the company’s fundraising and positioning in the market spotlight larger trends in a banking industry gone increasingly digital.

He noted that in Bud’s model financial services are provided as the firm positions itself as the “middle layer” between financial firms and the FinTech providers that are signed up within a firm’s marketplace.

In bringing far-flung financial services together at a single point of contact, Walsh told PYMNTS, “From a competitive landscape position it really comes down to one word, which is ‘collaboration.’ Open banking is allowing us to understand more about a user and to therefore serve them better by connecting them to journeys that are more relevant to them.”

Collaboration, of course, represents a shift in mindset and in strategy for traditional financial institutions (FIs) like banks.  Walsh offered an example: A customer going on holiday (vacation) may opt to explore foreign exchange providers — and traditionally the bank would offer up one or two services housed under its own umbrella of products and services.

But now, the executive continued, open banking can bring a host of competitive offerings to that same consumer. Those offerings may compete with the bank that is the original point of contact for the user, but nonetheless may be a better fit for the consumer’s need at that point in time.

“This really is where traditional players are now starting to sell and position third-party products within their own ecosystem,” said Walsh. Initially, “what is right for the customer may not actually be your product,” he said of the banks, though “that may come in time. It’s not for the short-term gain — how we sell as much product as possible. It’s a matter of ‘I want to understand the customer as much as possible … and to be the facilitator or the enabler in allowing that to happen.” This can benefit the bank, too, fostering trust from consumers that the FI will continue to help them find what they need.

The Evolving Relationship

At the most basic level, he said, collaboration makes financial life a bit simpler for users, as bank accounts, savings accounts, credit cards and mortgages may be spread out through client relationships with different institutions.

He said that as Bud and other firms start to get significant volume they can begin to understand the personas, the types of individuals or the demographics — through data and modeling — that can best be served by certain financial products and services. The bank that knows a consumer’s pay raise and bonus structure have changed for the better may be able to suggest a mortgage that can save that consumer significant amounts of money every month.

Beyond the collaborative model serving end users, Walsh took note of the fact that investment capital is flowing to his FinTech — and of course other FinTechs — from banks.

“There’s not a day that goes past where you don’t see another mainstream bank has made another investment,” he said. “Whether it’s here in the U.K. or globally and I guess for us it’s a huge credibility stamp … [the banks and traditional FIs] are buying into the vision and also hedging their bets.”

He told PYMNTS a majority of the $20 million in hand will go toward recruitment of new tech talent as the company targets markets beyond the U.K., including Australia, Canada and Singapore.

As open banking evolves, Walsh noted that there’s “a huge amount of work to be done in the industry both in financial services and other areas to get APIs to the standard that they are in other industries,” and he pointed to web mapping services as an example of such standardization. There also exists the need for further education of the population at large — witness a PwC survey that recently found that of 2,000 people surveyed, only one in four had heard of open banking and only one in five knew what it meant.

Nonetheless, maintained Walsh, “Once you start to show a user and the customer the value of why [open banking] is a benefit, people will start to engage with it more, and like any platform the more you engage with it the more it gets to know you better.”

He predicted that “in just a few years “we will look back and think ‘What were we doing before this happened? this is so much more powerful and so much more relevant and personalized to me as an individual.’”