Offering a banking service to companies in sectors that deal directly with consumers could help fintech driven challenger banks grow their customer base quickly.
Starling Bank is offering businesses in various sectors the chance to provide retail banking services through its application programming interfaces (APIs).
There is nothing new to banks offering other companies a white label service that they can stick their own brand on but the new digitally driven and tech savvy challenger banks offer something a bit different. It will offer the company the latest fintech services that customers today desire. At the same time it will boost the user bases of challenger banks, although on paper they will not be their own customers.
These challenger banks have a huge task on their hands winning over lethargic consumers. History shows that when it comes to current account providers consumers are reluctant to change.
Regardless of all the fancy apps and genuinely useful services on offer from digitally driven challengers the lack of financial incentives to change bank means customer acquisition is slow. Furthermore for many consumers that do sign up to challenger banks it is often as a second account to complement their existent current account, often from one of the high street giants.
The figures are revealing. When the UK payments regulator launched the current account switching service, which enable consumer accounts to be transferred to another supplier within seven days, in 2013 a rush of people clamoring to change their current supplier did not follow.
This system means when people are ready to change current account supplier it is easy, so clearly people are not ready. But as I said earlier people are attracted to second accounts and if offered one by brands they trust, like retailers, it is appealing. It can be combined with things like reward cards and offer financial benefits as well as making the customer feel special.
Then if you look at Open Banking, a regulation recently introduced to spur competition through enabling consumer data to be used, if consent is given, by multiple finance firms, there is a lack of consumer awareness of what it is and can offer them.
In fact, as I wrote an article last week, research from YouGov recently revealed that only 28% of people have heard of open banking, which promises to inject competition into the retail banking sector, it wasn’t really a surprise.
What was a surprise though was that YouGov found that only 14% of 18- to 24-year olds had heard of open banking, compared with 39% of over-55s.
Gareth Lodge, financial service IT analyst at Celent, said: “Undoubtedly the concept is sound because Starling are far from being the first to offer such a service – CBW in the US and Solaris in Germany are just two that spring to mind that have been operating for several years. Nor are they first in the UK.”
“That perhaps raises the second view point – the fact that others already exist yet haven’t transformed the industry suggests that Starling won’t instantly grow over night either. Not to say that there isn’t a need and a demand, more that this is a new market that demand has to be created for.
Lodge reckons profit rather than user acquisition is the main benefit for a company like Starling. “Unlike old legacy, which would require custom coding and integration, built correctly, exposing the right APIs to the end client is virtually free. It is an asset already built, so it will almost pure profit on the revenue. I think that, rather than customer base, is the more attractive thing for Starling, as it allow them to expand more profitably.”
If competition in the banking sector is ever to take-off there needs to be some serious campaigns to raise awareness among consumers.
I am always surprised how low take-up of the seven day current account switching service is whenever it publishes its latest figures. But then I realise I still have the same bank since university some 20 odd years ago. I have added an account from a challenger bank, but I still rely on my traditional high street supplier.
So when I wrote an article last week about research from YouGov revealing that only 28% of people have heard of open banking, which promises to inject competition into the retail banking sector, it wasn’t really a surprise.
What was a surprise though was that YouGov found that only 14% of 18- to 24-year olds had heard of open banking, compared with 39% of over-55s. That is worrying. Open banking lends itself to the generation that use mobile apps in different aspects off their lives, so if these people aren’t getting the message where is the take up of new services going to come from and for that matter where will the ideas for new services come from?
So why is government not doing more to make people aware of what could be a revolution in banking that could have huge positive effects on society? I haven’t seen any adverts about open banking.
At this rate it will be decades before the benefits of open banking are felt.
Would like to hear the thoughts of the fintech industry on how to increase awareness of open banking and what it can offer. Here is a challenge: describe the benefits of open banking for consumers in under 100 words. Put you efforts in the comments section for this post.
In this blog I hope to open a forum for experts to share their thoughts and even expertise through guest posts. I am a journalist by trade so can only really scratch the surface of some of the issues in the fintech sector, so I need to hear from you on various subjects.
Here is a guest blog post from Wayne Blacklock, senior solution architect at identity and access management software firm ForgeRock, talking about the considerations that finance firms should make before doing Open Banking.
Open Banking is here
By Wayne Blacklock
“Several challenger banks have already implemented API driven banking, the biggest banks in the UK have or will soon have gone live with their Open Banking APIs and the rest of Europe is following with PSD2. It is relatively early days, however the early signs are that this really is the beginning of a revolution in how we as consumers interact with our banks and take ownership of our financial data. However, Open Banking is not without its challenges.
Open Banking is a great example of how regulations can encourage and enable the growth of the data sharing economy. Strong trust and consent practices, both in banking and other industries, will be increasingly vital as the digital economy continues to develop.”
If your organisation is keen to join the Open Banking revolution, here are five things you should consider:
1 – Consent
Financial data should only be shared if and only if the customer has clearly consented to it. OAuth 2.0 is an open security standard for implementing delegated access and is a widely accepted solution to this problem. With OAuth, third parties who want to access data must send the customer to the bank first who will strongly authenticate them and request their consent before issuing an access token to the third party that will allow them to access. Customers also need to be able to revoke that consent at any time. Organisations are now grappling with how to properly leverage OAuth to solve these problems.
2 – APIs & Security
Most organisations did not have Open Banking in mind when they designed their APIs and security platforms. They now need to find secure ways to expose their APIs, many of which are likely running on top of legacy platforms. They need to both enable these APIs as OAuth resource servers and deploy OAuth compatible authorisation servers and integrate these with their customer facing applications in order to enforce the consent we discussed previously.
3 – Strong Customer Authentication
PSD2 mandates that financial institutions must enforce Strong Customer Authentication (SCA) when customers perform certain actions and this includes Open Banking. Typically when considering authentication mechanisms we consider three factors: knowledge (something you know), possession (something you have) and inherence (something you are). To achieve SCA at least two of these three factors need to be examined during an authentication event. Organisations must examine their authentication procedures and in many cases re-engineer these to comply with PSD2.
4 – Trust & Governance
Institutions need a means by which to determine that a third party is fit and proper to access customer data. In the UK the Open Banking directory, managed by the FCA, delivers this assurance however at this time across the rest of the world no such facility exists. Organisations outside of the UK must therefore implement their own third party governance processes and means to enforce them.
5 – Enabling Developers
Many of the organisations now grappling with Open Banking have never really had to think about the developer experience before. Designing, publishing & documenting a set of APIs and making them as easy to use as possible is not a simple problem and it really requires a whole different way of thinking. PSD2 also mandates that organisations make available a development sandbox that allows third parties to test their integrations in advance.
At the London Fintech Week event recently I attended a presentation from the Saudi Arabian general Investment Authority (SAGIA). Omar Rebhan, head of the UK office of the organisation, was talking about the opportunities for fintechs to set up shop in Saudi Arabia.
I am always told that countries like Dubai and Bahrain in the Middle East are very welcoming and flexible in their efforts to attract international businesses and workers. But these are small countries with limited internal market. Dubai has about 3 million people and Bahrain about 1.5 million. It is often a case of companies set up there to take advantage of investment, skills, supportive regulations, and financial incentives like attractive tax rates. For IT firms and others it probably isn’t the internal market that is most attractive, but access to the Gulf Cooperation Council (GCC) market.
But Saudi Arabia is a bit different. The country has 32.5 million people. And even more enticing for businesses in the digital sector, over 50% of its people are under 30. It has 88% smartphone penetration. The country is modernising. For example E-commerce sales in Saudi Arabia are expected to surge to $13.9bn by 2021, from about $8.7bn in 2017, according to market research firm BMI.
It offers the largest ICT market in the Gulf and has long been attractive to outside players. Major US IT suppliers such Cisco and Microsoft have been operating in there for years
And the country is accelerating this change. It wants to reduce its economic dependence on oil with fintech one area target for growth. It has even established Fintech Saudi will help foreign fintechs find customers, navigate regulations, find investors, connect to service providers and recruit local talent.
But perhaps the most compelling attraction to companies shaking up an industry is its approach to regulation. The country will work with businesses to create regulations that help them prosper. As a result regulations are changed on a weekly basis.
Recent changes to regulations to entice foreign businesses include reducing the time taken to get a work Visa from 30 days to 24 hours and a rule that allows businesses to be 100% foreign owned. In the past foreign companies had to have a Saudi Arabian partner.
But there are still challenges and Saudi SArabia is by no means there yet. According to, Andreas Krieg, assistant professor at King’s College London’s department of defence studies, the global tech sector thrives on “innovation, liberalism and freedom of thought” – all preconditions that are currently not met in Saudi Arabia.
“If Saudi Arabia is to become a truly global tech leader, the nation must become a liberal society that is not in fear to think outside the box, a business climate of openness and trust, where business is conducted according to the rule of law,” he said.
He said Saudi Arabia could eventually create a more liberal environment but that it will take a long time.
I would like to hear from fintechs about whether they would be tempted by what’s being offered by Saudi Arabia so please comment. You can read more about it here.
When a 28% loss becomes a 72% gain?
If there is one thing that appears to be certain about Brexit it is that it will be damaging to businesses, perhaps barring the odd hedge fund or two.
As a result it is interesting to see how organisations are spinning Brexit in a positive light. I received a press release today declaring that Almost three-quarters of London startups staying put despite Brexit uncertainty. Great news, 28% of startups are thinking of leaving London due to Brexit. I think not. A few years ago a positive press release about startups in London would involve thousands coming to London with hubs being established to support them. But now it is good news that only 28 of 100 startups interviewed are thinking about leaving. There is no positive angle to this.
As an act of courtesy before writing an article with a contradictory headline to the one on the press release I put it to the company that sent me the release that this is not in any way a positive story.
I quickly received an email reply thanking me for my comments. But I got more than I expected. It turns out the PR company had originally planned the angle the way I suggested but then changed it because the news outlets it had contacted wanted positive Brexit stories.
They also sent me the original press release they had put together before deciding on a positive spin. The headline was: Over a quarter of London startup founders considering relocating amidst Brexit fears.
But let’s be honest, Startups will be uncertain what they are doing at the moment because there is no clarity from government. Why polish a turd?
Read here some of the views about Brexit from the fintech community in London. No turd polishing here.
I would really like to hear the thoughts of tech startups in London about what they really think of Brexit. Please put your comments on this blog post.
While UK fintechs are playing whatever is in front of them amid the uncertainties caused by Brexit the people putting the money into them are clear that things could take serious turn for the worse.
When I speak to fintechs or attend their presentations they will always try and be positive as businesses should. They do talk about how Brexit could cause a shortage of skilled staff and even funding but they are generally positive. They see how illogical Brexit is for business and they are not alone.
But they remain positive about London future as a fintech centre.
But if the money to invest in fintechs dries up in the London they will have to follow the money.
So hearing from the venture capitalists themselves at London Fintech Week earlier this week really brought home the precarious position the UK fintech industry is in.
These are some of the comments made by a panel of VCs.
Martijn De Wever, CEO at VC fund Force Over Mass Capital, said said London is at risk of “losing a big portion” of fintech business at the moment.
“What you are seeing right now is all the other countries jumping on it and trying to get companies to open operations in their countries,” he said.
“It will become more and more attractive to move operations elsewhere,” he said. “Technology doesn’t know any boundaries, so it doesn’t really matter where your organisation is as you just need access to talent.”
Nikita Tchesnokov, principal at fintech-focused fund Gauss VC, said: “Will people be able to come here as easily as in the past in order to bring the skills necessary?” he said.
Alex Macpherson, chairman of VC fund Octopus Ventures, said: “Talent is an issue for the companies we work with,” he said. “How do you continue to scale up? Where you have businesses scaling up, they will be thinking whether they should do it in Berlin or Paris or Switzerland.”
I wrote this article following a day at the Fintech event.
Then we had the white paper. The government’s plan for its future relationship with the EU. I admit I have only skimmed through it, but from what I read about things including the financial services sector is that the relationship could be very complex and that there is a lot of cake that the UK government wants to eat. The elements the=at the EU will reject jump out at you even when skim reading.
I would really like to hear your views so please post comment.
Swedish bank Nordnet has decided to stop using AI assistant Amelia, from IPSoft, after unsuccessful use for customer services.
Despite not being unhappy with the technology the bank didn’t think it fitted in with their plans. This shows that like humans have a probation period robots need the same.
According to a report on Dagens Industri, with an English version on Nordic Business insider, the online bank started using the AI assistant in 2017 to make customer onboarding faster and improve general customer satisfaction. But according to reports it failed to impress.
Nordnet’s CEO Peter Dahlgren told Dagens Industri: “We have tried it towards customers, and the response is ok but not overwhelming, so we are choosing to prioritise other things within our AI focus in the short run.”
With all the hype around AI taking peoples jobs this is a rreality check on the timing of such a revolution. AI is clearly not yet right for everyone.
IPSoft’s Amelia which was launched in 2014, has an understanding of the semantics of language and can learn to solve business process queries like a human. It can read 300 pages in 30 seconds and learn through experience by observing the interactions between human agents and customers. If Amelia can’t answer a question, it passes the query on to a human, but remains in the conversation to learn how to solve similar issues in future. It understands 20 languages, as well as context, and can apply logic and infer implications.
Amelia just wasn’t the right fit for Nordnet it seems.
But that does not mean AI is not a strategy for the bank. Dahlgren at the bank said the company wasn’t directly displeased with IPSoft, but that they are instead choosing to focus their efforts in other areas going forward.
This includes the prediction of customer behaviour and preferences through AI, such as on a Netflix-inspired service that could offer customers stocks to buy based on their previous purchases.
SEB also in Sweden was the first bank to use Amelia technology for customer services after the software robot proved successful in an internal IT service desk project. The bank tried it out on its IT service desk before putting it in front of customers.
I recently attended an IPSoft customer event and I must admit it is difficult not to be wowed by what Amelia can do. But CIOs need to test it out before committing to it because like any human employee it might not fit in.
Read my report from the IPSoft event here.
Read more about artificial intelligence:
An open letter signed by more than 12,000 technology experts calls for a ban on artificial intelligence (AI) to manage weapons “beyond meaningful human control”.
Artificial intelligence in the enterprise isn’t some far-off science-fiction film fantasy. It’s already here, and it’s time for CIOs to judge its business applications.
Socially aware general-purpose artificial intelligence in the form of a dog could be the ideal form factor to take over the world.
Greater automation means the boundaries are moving and more jobs could be taken over by a computer.
While announcements such as Network Rail’s plan to automate signaling through digital technology will help fix the age old problem of trains not running on time, data technologies could make that other customer bugbear of unpredictably priced and often over-priced rail tickets a thing of the past.
By the 2030s, almost three-quarters of UK train journeys will be controlled by automatic signalling under a project to use digital technology to replace analogue systems, saving billions of pounds. Network Rail said more than half of the country’s analogue signalling systems would need to be replaced over the next 15 years, and that a like-for-like update would cost £20bn, with no real benefit for customers.
There is good reason to do this. UK train passenger numbers have doubled over the past 20 years but the railway infrastructure, which is largely Victorian times, is struggling to cope.
But what about ticketing? Whenever I decide to use a train I always end up being surprised at just how much I end up paying. My disappointment is always magnified by some clever clogs who tells me how little they paid. According to Trainline, which sells tickets via its mobile app and website on behalf of operators across Europe, rail passengers can save an average of 49% on prices if they pay when they first search for the journey. For example, an advanced single ticket for a trip from London Euston to Manchester Piccadilly costs £32 around 80 days before departure but rises to £87 two days before.
It is a journey from A to B and then back to A. It hasn’t even been Rocket science since George Stephenson launched the first steam locomotive with that very name. How hard is it to make getting the best ticket price easy?
Well not that easy it seems, which is why Trainline has its data scientists on the case.
I spoke to Fergus Weldon, the ticketing company’s director of data science last week. Trainline sells coach and train tickets in 36 countries with 60 million visits every month on average.
It seems that the latest data technologies and techniques are being applied to improve rail travel for travelers as well trough better pricing. Which I am sure will attract more users.
Weldon leads a team of 50 focused on data at Trainline. The company also has a few hundred software engineers
Weldon told me there is a wealth of data on the company’s systems that can be used to improve customer services. “We have a large pool of data to drive innovation for customers. We try and derive and understand the potential value in data sets that can help customers on their daily commute or on their holiday journey.” This can include giving them insight into when is the best time to buy a ticket. The company offers this service through its Price Prediction tool to customers in the UK.
“We need to understand what price looks like over time. Because so many people use our platforms it allows us to build up a really clear picture of how price changes up to the day of departure. From this we can build algorithms that help us predict when the ticket price you see is likely to increase,” adds Weldon.
The company has a large and developed data infrastructure that captures all the data such as search data, Weldon says. “We capture what journeys people search tickets for as well as the results of the searches. We then make it available to our data scientists in an easy to work with format which allows them to apply deep learning frameworks such as TensorFlow on top of the data to try to make even better price predictions for customers.”
The company is currently working on a project to roll out its Price Predictions service, which is currently only available in the UK, it in France and further afield.
The company is also developing technology to catch timely and contextual messaging about train service disruption. It uses twitter and it can read messages from the train companies using natural language processing.
It also has a cloud based data gateway that provides users of services such as websites and apps the ability connect to it.
This is not all the company has in the cloud. In fact Trainline moved fully to the cloud three years ago from its on-premise IT infrastructure, with everything is based in AWS. “We like this because it gives us autonomy and allows us to move a quite a quick pace,” says Weldon.
Let’s face it when a large software company announces it’s going to dedicate more staff and resources to a fintech programme in Europe we all think “so what?”
But when the same company selects Brussels over London to centre things, it is more of a “wait a minute” response. Prior to Brexit it would have been a “WTF”, but these days it is difficult to be shocked by some of the goings on in the UK government which creates so much uncertainty for businesses, so “wait a minute” is about right.
So in line with my ”wait a minute” instinct here is a bit more.
Oracle chose Brussels for its European financial technology (fintech) programme base. I wrote about it earlier in the week but because it took Oracle quite some time to answer a couple of questions I could not really dig much into it. The time taken to respond is probably as it took a while to find some answers that did not contain the word Brexit or uncertainty.
My questions and Oracle’s answers are here:
1 – Which other cities were in the bidding and why did Oracle select Brussels?
Answer: “Oracle selected Brussels for its excellent geopolitical location, with institutions ranging from the European Parliament to the European Commission. Belgium also has a history of innovation, for example in the payments space. (So no other cities mentioned and Brussels not traditionally seen as an innovation hotbed)
2 – Does Oracle have any fintech hubs in the UK?
Answer: “The UK fintech market will be well served through our European presence and is an important part of our fintech geography. We will continue to focus on London as a source of fintech-based innovation, and continue to evaluate where to expand our efforts to, based on demand and results”. (So I interpret that as a no.)
I get the feeling big companies will have to have separate fintech centres in the EU and the UK after Brexit, rather than a large Europe-wide centre, most likely in London. What about you? Answers in the comment box please.
Every now and again a technology comes along that escapes its tank in the IT department. Before you know it people at the front desk are discussing it with customers.
Then the business needs a strategy related to the said technology because everyone is talking about it. Even at the school gates parents are talking about something called blockchain instead of the next play date for their kids. And MPs are using the term so as not to appear out of touch.
This is a bit of a headache for the IT department. Take blockchain. There is a currently a seemingly huge gap between perceived blockchain adoption in businesses and actual adoption.
For example if you look at a recent survey from Deloitte, you will be under the impression that everyone is doing it. It found that 74% of the executives at global businesses said their company saw a compelling business case for the use of blockchain, and many said they were moving forward with the technology.
The survey found that over half (53%) of those using blockchain said they were using it for supply chain-focused systems, 51% for internet of things integration projects and over 40% in projects related to digital records.
I presume Deloitte interviewed business executives and not IT leaders because according to a recent Gartner survey, only 1% of CIOs were running blockchain projects and only 8% were either planning to do so in the short term or experimenting with the technology now.
David Furlonger, vice-president and Gartner fellow said blockchain adoption and deployment massively hyped.
“Rushing into blockchain deployments could lead organisations to significant problems of failed innovation, wasted investment, rash decisions and even rejection of a game-changing technology,” he warned.
There are public examples of blockchain implementations and press teams are making a lot of noise about them. Gone are the days when the latest technology developments were kept quiet for fear of losing advantage, today every blockchain project is proclaimed from the roof tops. This is magnifying the technologies use.
That is not to say it won’t be the biggest thing since sliced bread. It might well be.
There are compelling stories being told. For example HSBC and Dutch bank ING said their trial of blockchain’s application to trade financing has been a success, leading the way to faster, cheaper and more secure transactions. The success could pave the way for a blockchain-based trade financing utility.
Blockchain has its roots in the financial service sector as the technology underpinning bitcoin, but there are also examples of it being tested out in other sectors. Processes that require data security, the ability to share with certain parties and a guarantee that information has not been tampered with are seen as potential applications for the technology.
Other examples of blockchain’s use outside the finance sector include Sweden’s land registry authority, Lantmäteriet, which is using it in a pilot system for recording property-related transactions.
Meanwhile, the Dubai government is introducing a biometric border checking system that uses blockchain to ensure sensitive data can only be seen by the digital passport holder and the relevant authorities.
But according to Gartner only 1% of IT leaders are doing it now and only 8% plan to soon.
I would be interested to hear from anyone that is running a blockchain project. Please post your views. So, again, who is right, Gartner or Deloitte, or even both?