“It's difficult to talk about Open Banking as an abstract concept,” says Chris Gorst. “You really have to see what it can do in practice. You have to show rather than tell.”
As a 'challenge leader' for Nesta – a public body set up to promote and nurture innovation and creativity - Gorst is overseeing an ongoing initiative aimed at helping fintech startups to develop business models that have the potential to transform the way SMEs interact with major banks and building societies under the UK's new Open Banking regulations. And after the first phase of the 'Open Up Challenge,' ten technology firms have been awarded an additional £100,000 to develop their services.
From January 13, 2018, nine of Britain's biggest banks and one building society will be required to share customer account information with licensed competitors in order to promote competition in the financial services sector. As such, Open Banking represents an effort by the UK government – or to be more precise, the Competition and Markets Authority regulator – to create an environment where challenger banks and fintech companies can compete on a level(ish) playing field with their larger rivals. At the same time, Open Banking also represents a technical solution, in that account information will be shared using secure APIs – software applications that allow one system to talk to another.
Seeding The Market
But as Gorst points out, no one really knows what will happen next. The assumption is that Open Banking will lead to the creation of new and innovative services. But given that the necessary data sharing has not been in place before, it remains to be seen what those services will look like, and whether they will capture the imagination of the public.
So you can see Open Up Challenge as an attempt to seed the banking market with fresh, workable ideas. Initially, 20 tech firms were challenged to demonstrate how Open Banking might benefit small small businesses. And with the first phase of the 'challenge' now complete, the ten prizewinners provide some concrete examples of services that might shake up the business banking market.
Lining Up the Use Cases
So what could we see in the future? Well the first thing that has to be said is that Open Banking's APIs (Application Programming Interface) doesn't stand in isolation. “Open Banking is launching at a time when there is rapid development in the areas of data science and machine learning,” says Gorst. These technologies will potentially play a huge role in the development of innovative banking services.
For instance, prize winners include Fluidly and Fractal Labs. Fluidly offers what it describes as an intelligent cash flow engine, which will plug into both bank accounts and accountancy software to help small companies predict cashflow. For its part, Fractal Labs uses machine intelligence to analyse data and predict outcomes. Data analysis is all at the core of a service developed by Credit Data Research, already an established player in the behavioural analysis credit scoring market. Open Banking will aid the credit scoring process.
Easier Lending
One of the key potential benefits of Open Banking will be the creation of what Gorst describes as “friction free” relationships between SMEs and financial service providers.
For instance, Funding Options intends to use Open Banking to develop its service, which allows SME customers to easily compare rival finance providers. Meanwhile, alternative finance provider Iwoca sees Open Banking as a tool for for facilitating faster decision making when businesses apply for loans.
Turning Ideas Into Reality
As Gorst acknowledges, the first phase of the Open Up Challenge was aimed at developing ideas. Whether or not those ideas come to market depend, to a very great extent, on whether the target audience – namely small and medium sized businesses – respond positively. “One of the things we were looking for from participants in the challenge was whether they could present any solid evidence that small businesses would want to use this,” he says.
Gorst also believes that is Open Banking is to be a success, it will require not only effort on the part of innovative fintech companies, but also a publicity drive to explain the concept to the wider public and business community. In one respect, January 13 marks a watershed moment for the UK banking industry. But crucially, it is not a moment that will be on the radar screens of many people outside the financial services sector. “There is not a lot of awareness,” he says.”There is a role for public education."
The Next Step
The next step for NESTA is to run a second phase of the challenge – which will be open to everyone, not just previous winners – to develop ideas that can be taken to the market. Any startups wishing to compete for funding and take part in the next round can apply via Openup.challenges.org.
In addition to those mentioned above, the Open Banking challenge winners were: Bud (a banking platform), Capitalise (business advice) Coconut (tax and expenses management for the self employed), Handle (banking financial services dashboard), Teller (connecting bank accounts with financial apps).
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