UK banks are moving from being one-stop-shops for financial services to open platforms as consumers start to embrace a more “modular” approach to banking, according to the likes of HSBC, RBS, Nationwide and two high-profile financial technology (fintech) startups.
So instead of doing all of your banking through one or two firms, customers would have their current account with one provider and then bolt on other financial services like an insurance policy, ISA, mortgage and investments through other providers, all under the user interface of your choosing. This approach is called banking as a platform (Baap).
This would only be possible if the banks were to open up their data through application programming interfaces (APIs) though. This would allow fintech companies to make innovative use of bank data to offer a broader range of apps for customers. Much like Citymapper made use of open transport data through APIs to make it easier for people to navigate cities.
Banking as a platform
Kevin Hanley, director of design and services at RBS said: “You see the disaggregation of banking services, the disintermediation of banking services, banking becoming more unbundled, more modular.”
“We are moving from an era of physical banking to a connected bank of digital services. This starts to re-frame banking and our role in it as much more of a composite where we both provide services and link to other services. So we become a platform for our customers to navigate around.”
Head of innovation and insight at Nationwide Matt Cox also sees this modular approach to banking on the horizon: “We are approaching an inflection point over the next few years where customers will have a great deal more choice over where they do their banking.”
Mat Perkins, product director at the Nordic payments fintech startup Klarna was even more direct: “Banking will become a platform. I think the banks that will survive and thrive are the ones that open up their APIs. The ones that don’t will become like Nokia.”
This is essentially what the digital-only challenger banks have been saying since their inception. The CEO of challenger bank Mondo, Tom Blomfield, wrote in a blog post: “This is why Mondo has a singular focus— to build the best current account in the world—rather than selling dozens of different financial products. We can focus on what we know best, whilst offering our customers access to the best products and services from across the market.”
Kevin Hanely said RBS wants to position itself as “the bank of APIs”. He explained that despite not knowing exactly what opening up its APIs will achieve, he is keen to explore “how opening up our APIs to others can create things we haven’t even thought about.”
Perkins from Klarna said: “You don’t know what is going to happen when these APIs are opened up. Banks will innovate themselves, they might innovate on other bank’s platforms and of course fintechs will be there as well.
“When these APIs are opened up, in the way Mint.com has done in the USA, is the ability for third parties to be the front end for all of your bank accounts. At the moment that’s just not possible.”
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Christoph Chauzot, group head of innovation at HSBC wouldn’t be drawn on specifics but he did say: “In terms of the opportunities that we see, there is AI, data, digital identity, APIs.”
Nationwide’s Matt Cox is more bullish: “If you accept the fact that the kind of services you will have to offer customers in the future will require you to work with a broader set of organisations, yes fintechs included, then you are going to need a way of opening up your services to work more readily with them.”
Cox said that this approach does raise some interesting questions around customer data which will have to be assessed. “In a world where the data is freely available and the consumer chooses where to do their digital banking, this raises some interesting questions around accountability […] This is something we will have to decide upon collectively as an industry.”
Mondo has exposed its APIs to third parties since February. Chief technology officer Jonas Huckestein wrote in a blog post: “We’ll allow developers to build applications that can request access to other customers’ data on an individual basis, using OAuth 2.0. For example, in the future you could make an accounting app that connects to Mondo and customers could authorise you to access their account to extract their expenses.”
Huckestein is similarly aware of potential issues around data though, writing: “There are several important questions around data security and privacy that need to be answered before we can allow developers to publish apps that can access other people’s data.”
What next for the banks?
Klarna’s Perkins said: “Consumers and banks having a one-to-one relationship will go away in favour of a one-to-many relationship. I think the banks that remain will essentially be platforms similar to how ISPs [internet service providers] are for the internet now. Basically it operates in the background, it works and the trust is there […] The customer experience will be over the top of things.”
Stephen Lemon, co-founder of the British payments startup Currency Cloud sees consumers becoming “provider agnostic at a bank level.” He says: “You will see a move towards re-bundling, where individuals can pick and choose services from the individual providers.”