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Real #OpenBanking

The financial industry is one of the last large industries that has not already been really disrupted by technology, but that’s about to change.

In my last article, I touched on how London has grown to become the fintech capital of Europe, and how the massive uptick in investment has led to an explosion of products in spaces like payments, foreign exchange, wealth management, loans, stock trading, and so on. Yet, on the most part, these newcomers haven’t really disrupted the industry.

At the end of the day, these new fintech providers apply pressure to banks – no doubt – but even though they might compete on one service specifically, as a whole they still rely on banks. Specifically, they rely on the old banks’ infrastructure and services to operate, because they rely on connecting to your existing bank to fund your accounts with them or receive money, and in doing so generate revenue for the banks. Many of the other neo-banks fall into this space as well, such as Simple and N26, as they deliver their solution by pulling together services accessed by APIs to enable the solution. So, to steal a quote from Marc Andreessen, they’re re-inventing the user experience or business model but not “the whole thing.”

The result of this has been that old banks haven’t been incentivised to improve the products and services they are offering customers. Yesterday, the Competition and Markets Authority (CMA) released a report on their market investigation into retail banking, and stated that they found that “the older and larger banks, which still account for the large majority of the retail banking market, do not have to work hard enough to win and retain customers…”.

They then went on to outline the resulting problems with the older and larger banks. A few of the many include the fact that banks lack transparency, have overly complicated charging structures, and make it difficult for customers to compare services. Simultaneously, the old banks are providing barriers to entry for new entrants, as they control access to existing services and infrastructure (e.g. payment systems) and thereby can reduce the ability for new entrants to enter and succeed in the market.

To combat this, the CMA has put together a wide range of measures to improve the status quo and ensure there is competition in the market, a key one being the Open Banking Standard. At the heart of their proposal is the call for open APIs. In brief, this will require banks to make transaction data available through APIs by early 2018, aligned with the PSD2 timetable (more on PSD2 – Payment Services Directive 2, here if you’re new to it). The result will mean that fintechs now have a more even playing field with banks (banks might have the transaction data, but now will have to provide it via open APIs) and customers will have the benefit of better products and services that are not only tailored to their individuals needs, but are also delivered securely and confidentially via APIs.

And that’s where Starling Bank comes in. At Starling, we’re audaciously disrupting the financial industry, and we’re already pushing the envelope on Open Banking and embedding an API-based approach into everything we do. Back to the Marc Andreessen quote – unlike the others, we’re reinventing “the whole thing.”

Unlike the others, we are building a full stack bank. This means we’re building our core banking platform from scratch, while simultaneously building our marketplace platform to provide an API layer to connect to third parties and integrate financial products and services from across the market.

In this way, we go beyond the Open API standard from the outset to ensure we’re offering our users the best possible experience. This enables us to provide transparency to users and offer them a choice of financial products from across the market, such that we provide the best current account, and also serve as a gateway to every other financial service.