Welcome to the Frictionless Finance Report, our monthly look at everything new in the world of Open Banking, FinTech, and consumer experience. If you’d like to receive this in your inbox, fill in the form at the bottom of the page. This month we examinea new consultation on Open finance and ask what impactwill thishave on the future of money.

Open Banking 

News in the world of Open Banking has come thick and fast over the last month.  

As the UK and other countries begin to slowly relax restrictions with a view to returning to some sort of ‘normality’, some have begun to inspect the impact that the last 12 months have had on the world of finance. The conclusion – in general terms – is that things are unlikely to go back to the way that they were pre-pandemic. 

There may well be a longing to have a drink in a bar and meet up with friends and family for dinner as we once did, but there is little appetite to go back to more analogue methods of banking that we may have been used to pre-pandemic. Indeed, as we’ll see further through this briefing, one eminent banking technologist has foretold the end of cash in the UK. 

Anecdotes abound of musty ten and twenty pound notes being kept in wallets through lockdown without ever seeing the light of day, but at the same time, there remains in the country, a significant minority of the population that genuinely require access to cash. Those in rural communities and the elderly are two particular segments of the population that will require significant consultation before there can be any formal discussion on removing cash from circulation.

At the same time however, one of the drivers that may finally negate the need for cash is the progress made by Open Banking, and particularly the drive from Open Banking to Open Finance.  

Day-by-day, it looks more and more likely that Open Banking will be supplemented by Open Finance by mid-decade. By expanding the coverage of Open Banking to further product fields such as investments, pensions and mortgages, consumers will have far greater control over their money. 

This week in the Frictionless Finance Report we have a number of write ups that illustrate how far we have come with Open Banking, and what needs to be readied in preparation for Open Finance. We also have several that highlight the progress forced on us by the pandemic. 

Open Finance 

The FCA has already begun a consultation on the move to Open Finance and as well as recognising the benefits that it would undoubtedly offer to consumers, has also shone a light on some of the potential challenges. Data ethics and digital identity are two such issues which would require close monitoring should Open Finance come to fruition.  

A statement from the FCA read: 

We will continue to work with the Government to support the design of future Smart Data legislation and support industry-led efforts to develop common standards and roadmaps to Open Finance. We will also continue to encourage Open Finance and digital identity propositions to apply for our sandbox and direct support.

Yodlee have written on what they perceive to be the major benefits for consumers and business in moving to a system of Open Finance. They note that if the system is truly successful, then consumers won’t actually see it - but many everyday practices such as payments will become invisible. 

Importantly, Yodlee write that using Open Finance will offer a level playing field for financial service companies, potentially offering a dramatic shift in the dynamics of the financial system. 

Brian Costello, VP, Data Strategy & Governance at Yodlee said: 

There’s an opportunity for improved financial well-being of consumers and families but also it’s going to be a virtuous cycle for competition and customer protection.

As this ecosystem takes off, the data that is being generated, correlated, and used is beneficial not just for the consumer and their direct third-party service providers, but by all third-party service providers.

The Open Banking Impact  

As noted in the intro, the forced impact of the impact has positively affected the volume of data calls used in Open Banking. This has been recognised in new research from Equifax which reckons on there having been a 140% increase in Open Banking adoption since Covid-19 struck last spring.   

Another potentially momentous use case for Open Banking could be in the world of insurance. Today, as described by Josh Rix of Woodhurst Consulting, insurance is one size fits all, complex for consumers to understand, and most consumers have multiple policies across different providers. 

Using Open Banking however, consumers could see all of their policies in one place to help keep track of them all, could automatically renew or switch their policies, and perhaps most importantly, offer bespoke pricing for each customer. 

The disappearance of cash, and the emergence of Open Banking as a method of making direct account-to-account payments is one picked up by Raconteur. As well as detailing how cards now make up more payments than cash, only 25% of transactions are made with cash. They illustrate how for consumers, Open Banking offers a safer and cheaper method to make payments.   

The subject is picked up by DirectID partner, Vyne. Writing in Information Age, their COO, Damien Cahill, states that: 

Fintechs are leading the way with technology to trust customers are who they say they are, digitally, so that they can access frictionless payment experiences without merchants incurring the risk of fraud.

He goes on to say that using the power of Open Banking and the innovativeness of FinTech’s, development in fields such as affordability has come on massively, with account details, credit scores and more being brought together to offer a truly holistic view of a customer.  

Finally, writing in Finextra, Tom Greenwood of Volt, says that following the increase in charges from Mastercard and Visa after the UK’s exit from the EU, Open Banking can provide a balm. With direct account to account payments now available through Open Banking, consumers do not have to rely on traditional payment rails to make payments.   

Best of the rest in Open Banking: 

• Banks should look to use Open Banking to increase customer retention, writes Steve Morgan of Pegasystems in Finextra 
• 41% of lenders are waiting to see how Open Banking progresses before making a decision on whether to use it, say Yolt in a new survey 
• Open Banking has yet to make a splash in the world of P2P says P2P Finance News 
• 52% of consumers claim to be unaware of Open Banking according to a survey of 2,000 people by Mambu  
• Tide have said that banks are dragging their feet on implementing open APIs  

Open Banking Abroad 

This month as we look at the latest news from across the word, we settle on three well reported locales. Australia, the US and Canada have in their own way, been at the forefront of news in Open Banking. While Australia has been far in front of the other two in terms of progress, both America and Canada have begun to press forward in their own right.  

Australia 

In Australia, Mambu have followed up on their global survey (above) by reiterating their point that in Australia, almost 74% of people have not yet heard of Open Banking. Mambu note that despite this large number, 77% of Australians are already using more than one mobile finance app. Moreover, the benefits that can be derived from using Open Banking was well received by respondents.  

The fact that Open Banking is not yet in common parlance is also reflected on by Nick Tubb, Head of Financial Services at Facebook. He makes a strong argument for Open Banking becoming a force for good in Australia, pointing out the benefits that can be found through quicker and more efficient onboarding, helping consumers to better manage their money and more customer-centric apps.  

United States

Two conflicting reports relating to Open Banking in the United States caught our eye this week. 

In Credit Union National Association, Lange Noggle, Senior Director of Advocacy and Counsel, has said during a recent conference that Open Banking will be difficult to implement in the United States.  

Noggle said: 

Open Banking would likely be very difficult to accomplish in the U.S., mostly due to multiple state and federal regulators overseeing financial institutions, and the question of who would be in charge. It would need to start with a piece of legislation getting passed by Congress, the enacted into law, then it would go to regulators for the development of a rule.

Meanwhile in pymnts.com, reports on the Open Banking Report, which they produce in conjunction with Truelayer. The report states that the US could become the next “frontier” for Open Banking. The report goes on to note that while there has been little by way of legislation passed at either a federal or state level, individual companies are progressing with apps and technology based on open APIs. 

Canada 

A new publication from Open Banking Initiative Canada (OBIC) and reported in Wealth Professional has stated that Canada is falling behind other jurisdictions in their implementation of Open Banking.  

Christian Clapton, co-director of OBIC, said: 

Being the focal point for consumer-directed finance in Canada, we here at OBIC believe that Open Banking can help all Canadians in their financial livelihood, especially the 48% of us that are $200 or less away from insolvency at the end of each month.

Finance 

As we have already alluded to, how we use, save and spend money in the future will continue to dominate debates for years to come. Whether physical cash will survive is an issue at the heart of government at this time.  

Separately, no one can ignore how digital coins have entered the mainstream. Whether it is Bitcoin, stablecoins such as Facebook’s offering, or potentially a digital coin backed by a nation state, digital coins are on a march.  

Both the FT [paywall] and Global Banking & Finance cover the prospect of the UK Treasury introducing a UK digital coin. The benefits for the UK would include a lowering a transaction fees and not losing control of currency should UK citizens transfer it to crypto’s such as Bitcoin over which it has no control. 

At the same time, Anne Boden, head of digital challenger, Starling Bank, has stated that she believes cash will disappear within the next two decades.  Speaking to the FT [paywall] she said that she does not see age as a barrier to the use of technology (as a replacement to cash) and that what was required for it to happen was universal broadband coverage and smartphones. 

Best of the rest in finance: 

• HSBC has offered the opportunity for those of not fixed abode to access a bank account. News via the i newspaper   
• The New York Times examines London’s opportunities as a financial hub following the UK’s exit from the EU  
• What does “Google + financial services” equate to? The Financial Brand has more 
• Also in The Financial Brand – how can banks use digital to strengthen their digital sales journey

FinTech 

After coming through the worst pandemic in a century, many FinTech’s will at this point be considering how they have fared. While some will regrettably have not made it through, others will be considering their war wounds and a lucky few will have flourished.  

The FT [paywall] has some considered analysis on the subject. While focusing on some of the larger players, it shows that FinTech’s have in tandem, managed to reduce costs, while focusing on customer need.  

JP Morgan Chief Executive, Jamie Dimon has stated that despite the pandemic, FinTech is very definitely here to stay. He noted in his yearly shareholder letter, that FinTech’s have done a great job in easing customer burden and meeting their pain points, though also writing that the regulatory bar is lower for them than large banks such as his own. 

It seems that that message has also been well received by investors into tech firms. With figures compiled by Innovate Finance and supported by Pitchbook, it has been revealed that FinTech firms received almost $3 billion in funding across more than 100 deals over the last quarter.    

That number is over 300% larger than the corresponding figure from 12 months ago, showing that despite the pandemic, investors still feel a real sense if opportunity within the market.  

Some of the headline deals included a $450m investment in Checkout.com; $376m into Starling Bank and $300m into Rapyd. 

There is also a number of FinTech IPOs that have just taken place or about to happen. Just this week, PensionBee listed in London, with Wise (formerly TransferWise) following shortly behind it.  

Full reading can be found in AltFi, CityAM, Business Cloud and Daily Business.  

The success of the UK FinTech industry was also highlighted this month by the Chancellor, Rishi Sunak, who confirmed that the UK Government would be taking forward the suggestions within the Kalifa Review of UK Fintech. 

As part of that, the FCA will introduce a ‘scale box’ which is a set of measures designed to enhance the existing regulatory sandbox, and open the sandbox to firms focused on environmental or sustainability factors. 

An industry-led Centre for Finance, Innovation and Technology (CFIT) has also been backed, to support FinTech growth with the help of regional hubs. 

Further reading can be found on the UK Government website. 

DirectID News

Following our most prolific year as a FinTech start-up, DirectID have been nominated for two awards in the last month.

Firstly, we’ve been shortlisted by Flexbility Works as a Top 10 flexible employer – a huge shout out to our HR department for guiding our amazing team through a challenging year.

We’re also thrilled to be finalists in the ‘Analytics Provider of the Year’ category at the British Data Awards, an annual campaign that aims to uncover data success stories.

Kudos and good luck to the other shortlisted companies. We look forward to the announcement on Tuesday 4^th May.

In our efforts to pioneer the use of bank data in new markets, we’re delighted to welcome AX to the platform as new customer.

AX will be utilising DirectID to illustrate customer’s affordability following car accidents and car hire. Currently, credit hire organisations have a challenge in getting bank statements from customers to prove affordability. DirectID can provide this through Open Banking.

DirectID’s solution will connect an individual’s bank account through our Open Banking APIs and present the transactions in a way that will confirm if the individual could afford to pay the costs of a claim upfront.

Welcome to the platform AX, we’re thrilled to be working with you.

In a recent blog post, DirectID CEO James Varga examined how DirectID impacts within the parameters of Open Banking/Open Finance and the credit risk lifecycle. And if you missed last month’s webinar that concluded the Open Finance campaign, fear not. The team have compiled the key learnings from the session in a 5-minute read.