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Almost 60% of UK fintechs are reconsidering the type of companies they work with in the era of open banking, with three-quarters of these expecting tech companies to become more important.
The findings of a survey by EY also revealed that 94% of these companies see open banking as a major opportunity.
In the UK, the Competition and Markets Authority’s rules for open banking and the EU’s Payment Services Directive (PSD2), mean banks have to be capable of providing third-party financial services suppliers access to customer data, if the customer agrees, through application programming interfaces.
The EY survey revealed 81% are actively getting ready to benefit from these rules and that 29% are already fully prepared.
This will mean many fintechs are reconsidering which types of companies could be potential partners in the future, according to Hamish Thomas, open banking and payments lead at EY. “However, whether it’ll be other emerging fintechs, more established banks, technology companies or a combination of these, it will be fascinating to see what new products and services are launched over the coming months and years, which will transform our daily financial lives.”
At the recent Innovate Finance Global Summit in London, a panel of fintechs discussed the fine balance between competition and collaboration.
Rishi Khosla, CEO at challenger bank OakNorth, said the fact artificial intelligence software algorithms are open source reflects the collaborative approach in the industry. “We have partnered with other fintechs as part of our journey to get innovation and speed to market.”
Read more about PSD2 and open banking
- The government’s Competition and Markets Authority (CMA) has requested feedback on proposals to increase competition in the UK banking sector.
- The Competitions and Markets Authority opens up the banking apps market following an investigation into how to create greater competition in banking.
- With the EU’s Payment Service Directive (PSD2) going into effect in January 2018, banks have no time to waste in preparing for the changes it will bring.
Ron Kalifa, vice-chairman at Worldpay, said: “Collaboration and coopration is a constant challenge for most organisations. When do you collaborate and when do you compete?”
“Collaboration tends to be at the back end because fintechs have different capabilities there.
Anne Boden, CEO at app-based challenger bank Starling, said people usually consider fintechs and banks working together as collaboration. “But there are lots of different permutations,” she said.
“We are a bank, but we focus on technology so much so that we are almost more a technology company than a bank.”
She said the company’s marketplace, which is like an appstore for financial services, connects providers to Starling’s customers if they want other services. “People usually think these companies are small, but more than half are actually big. Big companies have realised new ways of collaborating are important.”
Fintech is becoming an attractive distribution model for the big suppliers because the cost of customer acquisition for fintechs is much lower.
Beyond collaboration, EY’s survey looked at the skills available to help fintechs in the open banking era.
It found 30% of fintechs surveyed have teams of 10-plus working on open banking projects, which is significant for firms with a workforce of 50-250 employees. Resourcing talent was only the fourth biggest challenge, according to participants.
“The talent in fintechs is there,” said Tom Bull, director of fintech practice at EY. “Recruiting staff to roll out Open Banking is not seen as a huge concern, which speaks volumes for the innovation and skill some of the UK’s top fintech firms already have within their four walls.”