Frictionless Finance Report - Thursday 24th June

This month we examine the use case for Open Banking in the gaming sector and the potential for a digital coin from the Bank of England.
Published on
June 24, 2022
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Category
Finance & Fintech

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 examine the use case for Open Banking in the gaming sector and the potential for a digital coin from the Bank of England.

Open Banking 

Last week, the Guardian newspaper illustrated how thousands of customers of gaming companies were able to rack up thousands, in some cases hundreds of thousands of pounds worth of debt, without the companies questioning where the money was coming from, or checking on the welfare of their customer. 

As the column points out, on one occasion, a customer, after not depositing funds for a short amount of time, was contacted by a VIP Manager at one firm to say “Long time no speak. I noticed you are depositing less than previously, is everything OK?” 

Eventually, and only after racking thousands of pounds of losses did the respective companies ask to see evidence of the players financial records, in order they could prove that they could afford the losses. As the story broke because an individual went to jail for stealing money from an employer, it is clear they could not. 

Even then however, one individual in the story talks of how he was able to keep the gaming firms at bay using “Microsoft Paint” to edit his bank statements.  

The cases highlighted by the Guardian evidence the difficulty that firms, including those in the gaming sector, have, of understanding their customers, particularly around their sources of wealth, and levels of vulnerability.  

It becomes clear from some of the information released as part of the court case that resulted in the publication of the article, that in some instances, the companies had no idea how much money their customers had lost with them until years down the line. 

It must be clear that big companies must move faster and garner more detail to truly understand their customers, particularly where their financial (as well as physical and mental where gambling is concerned) health is concerned.  

Phone with gambling app screen, on table with coffee with glasses and coffee

The article culminates with a plea from the Campaign for Fairer Gambling for firms to check with their customers at a much lower threshold of losses.  

While the “single view” of a customer may have worked in this instance – the individuals would simply move on to another provider after placing some big bets – Open Banking would also have given the firms a real-time view of their customers finances.  

This would have encapsulated their income (salary, earnings, benefits and other), expenditure, their ability to absorb losses and payments made to other gaming or gambling firms, and ultimately the ability to have identify and work with customers who may be in difficulty, or those guilty of embezzlement or fraud in order to finance their gambling.  

Request to Pay 

The need for small businesses to generate funds and receive payment for invoices has been starkly highlighted by the pandemic. Reducing the time that it takes to receive funds following the submission of an invoice has long been touted as one way of easing this particular pain. 

Request to Pay (RtP), using Open Banking functionality could reduce this time to virtually zero. Using QR Codes, SMS, email or WhatsApp, it is possible to send an invoice, and receive funds near instantly.   

News via pymnts.com 

UK Leads the Way 

There has been further validation that the UK continues to lead the way on Open Banking as new research from Yapily has identified the UK, followed by Ireland and Germany as being the most advanced player in the Open Banking market.  

Yapily have created a league table to rank each European country. Crowdfund Insider report that:

Each country has been ranked based on levels of supervision and enforcement by the member state, the presence of Open Banking from a technical standard, regulator interpretation, API standards, and bank readiness, and overall product score.

Because of their lack of centralised bodies to drive forward Open Banking standards, Italy, Spain and France came in at the bottom of the pile.  

A similar survey, also published this week, from Mastercard has reaffirmed the UK’s place at the top of the pile, but also suggest that the Nordics are well placed to benefit from Open Banking. Mastercard based their rankings on the number of APIs, the regulators and how receptive customers are to Open Banking. 

The league table also makes a serious point in that countries need to have common standards and levels of interoperability in order to make a success of PSD2. With thoughts now turning towards the implementation of an Open Finance, the level of coordination between European states will be key to success.  

News via FinextraCrowdfund InsiderThe Paypers and eMarketer  

Best of the rest in Open Banking 

  • City AM have reported that some of the major banks are unhappy about the high-costs associated with Open Banking, particularly around its promotion. Read more
  • Could Open Banking support mortgage prisoners who are unable to get new deals? Read more
  • And moreover, could Open Banking help consumers who are reluctant to switch providers but may be paying over the odds for their services? Read more
Architectural shot of a tall financial building in the city.

Open Banking Abroad 

Australia 

Research conducted by FinTech Frollo has suggested that consumers are excited about the tangible benefits that Open Banking (brough through the Australian Consumer Data Rights), can bring. The ability to verify income and affordability was the most popular response amongst business owners, while aggregation of accounts was the most popular for consumers.  

Frollo, CEO, Gareth Gumbley explained that he thinks the biggest impact will be on the mortgage market. 

News via Frollo and AltFi 

United States 

Andrew Gilboy of GoCardless notes that just as cheques were popular with consumer in the 80s and 90s and debit cards have been popular over the last fifteen years or so, so they too, will make room for Open Banking. He writes that some of the biggest brands in the US who use subscriptions could prove to be the driving force behind the adoption of Open Banking. 

News via Forbes 

Latin America 

Open Banking Expo have delved into FinTech advancements in Sout America to gauge the state of the market. They write that good progress has been made in Mexico and in the more regulator run Brazil. Chile and Colombia are expected to be the next two countries to dip their toes in the Open Banking water.  

News via Open Banking Expo    

Finance 

The Bank of England has confirmed that it evaluating the need for a central bank digital currency (CBDC), or “Britcoin”).

It has been stated that should a digital coin be released, that it must be as a complement to cash, and not a replacement. Fears have also been raised over the last few weeks over the potential damage to the environment. Mining for digital coins such as Bitcoin has been shown to have the same energy usage as a medium size company. The Bank of England’s Director of FinTech has however stated, that it will work in conjunction with the UK’s transition to net-zero emissions and will not be highly energy consumptive. 

Should it be launched, the coin would also be a ‘stablecoin’, ie, pegged to the British pound. This will rule out some of the wild swings in price that are traditionally associated with digital coins.  

While there are several potential benefits, such as lower costs and the opportunity for the Bank of England to compile real time spending data, there are also the implied security risks that come with a digital asset that need to be overcome prior to launch. 

Close up shot of British pound note.

Separately, the FCA has chided crypto firms and wallets for their lax attitude to AML and CTF regulations.       

News via FinTech FinanceFinextracoindeskBusiness Insider and This is Money 

Best of the rest in finance 

  • Americans continue to trust banks over FinTech’s, government agencies and big tech. Read more 
  • What impact will Covid mortgage holidays have on individual’s credit reports? Read more [paywall] 
  • Covid fears drove a 12% increase in the use of contactless tech in 2020. Read more 
  • Lloyds Banking Group is to make a further round of branch closures. Read more 

FinTech 

Both the Scottish and UK Government have been pledging their support to the FinTech sector this month. Digit report that £124m was invested in smaller tech companies with the tech sector as a whole representing 44% of all investment.  

Mark Sterritt, UK Network Director – Devolved Nations at the British Business Bank, said:  

Last year saw a record number of small businesses receiving equity investment in Scotland, placing the country ahead of other parts of the UK with the exception of London. Our analysis suggests this has continued on into 2021, as the Scottish economy recovers, and investor confidence returns. 

Meanwhile, the Economic Secretary to the Treasury, John Glen, has been giving the sector a vote of confidence while making an appearance at the City & Financial Global’s City Week 2021: Financing A Sustainable Global Recovery conference. 

He explained that last year it had commissioned a fintech strategic review and was taking forward a number of actions that were recommended in the review. 

He said: 

These include help for fintech firms to recruit the best talent for our new scale up visas scheme or regulatory scale walks that will enhance support for early stage fintech firms and help for UK fintech firms to launch overseas.

This is another key element of our vision for the future of financial services, and that’s because as a country with a globally leading fintech industry, we will be missing a trick, if we fail to build on our strengths in this area. 

News via FT Adviser [paywall] 

Indeed, the FinTech sector in the UK has been a remarkable success story. Last month, an AI startup called Tractable became the 100th UK unicorn – that is, a private company with a $1 billion valuation. The UK is the only country after the US and China to have 100 unicorns. 13 UK unicorns have been created already in 2021, compared to just 7 in 2020. 

News via AltFi 

Best of the rest in FinTech 

  • Amazon has launched its first innovation hub in Dubai working on digital payments and FinTech. Read more 
  • The founders of Wise on their startup success. Read more 
  • Could AI impact heavily across global trade? Read more 

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Frequently asked questions

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01

What is open banking and how does it work?

Open banking is the practice that allows people and businesses to share up to 12 months of transaction data. DirectID is regulated by the Financial Conduct Authority as an Account Information Service Provider (AISP) - the intermediary who safely facilitate this process.

02

What is transaction categorisation?

Transaction categorisation is the process of adding context to raw transaction data. The process gives you an understanding of what your customers' spend their money  and where.

03

How does bank account verification work?

Using the bank account verification API, DirectID matches the details provided from your customer to those on their account. We apply a set of sophisticated algorithms and rules to verify the name, and then tell you what does and does not match.

04

How do you verify income with open banking?

After a customer shares their data, DirectID identify recurring credits to the account and group these. Using an algorithm we identify the monthly income for each income stream. We then return the calculated income and confidence score to you.

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