Why challenger banks want to become a marketplace for your finances

With PSD2 and other regulatory initiatives pushing us towards a data-sharing economy, challenger banks in the UK and Europe are steadily heading towards embracing a marketplace mentality that promotes all of a consumer’s finances in one place.

Several challenger banks, such as Starling, Tandem, and Monzo, are already aiming to be the go-to place for a consumer to handle everything with their money. Come January 2018, APIs are going to play a big role within the banking industry as PSD2 makes open banking mandatory.

PWC recently stated that open banking is set to drive a fundamental change in the banking landscape.

“As the regulators take action to further develop competition, the future market will be increasingly varied and modular.

“Open banking will give rise to new business models.”

Anne Boden, CEO of digital-only Starling Bank, recently announced a new marketplace feature with the aim of opening up banking using APIs, aligning with the Opening Banking Initiative and PSD2.

“We want Starling to become the gateway to managing your entire financial life on your mobile. We’re all about creating the best current account – so the Marketplace is our way of opening doors to other fintechs and start-ups who have their own unique focus. This way, we can offer our customers the best range of financial products and collaborate with other companies to revolutionise banking.”

Boden believes that creating a financial hub for consumers is the present; creating a financial hub for consumers that works on a model of collaboration and uses AI and analytics to improve financial awareness, decisions and management is the future.

“Not only is the Marketplace an exciting part of the future of fintech, traditional banks are also going to have to think about their futures in a similar way, especially with the upcoming Open Banking Initiative and PSD2 regulation.”

“A marketplace features brings the convenience and efficiency of the way we use our smartphones, to the way we manage our money.

“Customers will benefit from a range of choice — which is not limited by traditional rates and products — and a greater level of transparency and accessibility when it comes to finance.

“Companies will benefit from the focus the Marketplace encourages — one company doesn’t have to offer every financial product and service. We can work together to offer the best ISAs, mortgages, loans, developed by different companies, but brought together in the Starling Marketplace, embedded within our app.”

And when quizzed whether other traditional and challenger banks will follow in Starling’s footsteps, Boden was honest.

“In terms of traditional banks – they will have to become more open and transparent to meet the expectations of regulators. In terms of other fintechs and start-ups, the Marketplace allows us to connect and partner with them, turning ‘competition’ into collaboration.”

And it’s not only challenger banks that have open banking initiatives on their minds. HSBC recently announced the initiative to move towards open banking, with the aim to be the first high street lender to launch an app that allows customers to see all their accounts – including those with other banks – in one place. The move comes months ahead of the PSD2 deadline that imposes banks share their consumer’s personal data.

Moreover, players such as Google, Facebook and Apple all have access to incredible consumer data, behaviour and insights, all of which will be extremely relevant when pairing with payments data.

Until now, banks have largely been able to take customer loyalty as a given, and switching banks has been relatively infrequent – in the UK, only 3.5 million people switched banks between 2013 and early 2017 (just 5% of the 70 million active current accounts). But as more agile tech organisations set high standards in terms of rapidly delivered innovation and customer experience, customer loyalty is no longer guaranteed.

As a result of this, consumers, especially Millennials, won’t shy away from using new platforms that are better tailored to their needs. Indeed, 73% of Millennials have said that they would be more excited about a new offering in financial services from Google, Amazon, Apple, Paypal or Square, than from their own traditional bank.

Huw Jenkins, CTO of The Money Cloud, debates that it’s not all bad news for the banks. Incumbents have the upper hand during the regulatory changes – they have huge customer bases and the trust of their consumers. Whether they can retain their loyal customer base is the question.

Fintech influencer Chris Skinner believes that incumbent banks are going to have to work harder than fintechs, and collaborate with many different technology providers in order to succeed.

It’s clear that customers are the real winners in the midst of PSD2 regulation – they will be able to ask any provider for service, build their own bespoke suite of payment services, and view all of their accounts in one place. The question is, which bank will they turn to?

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