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The digital mutual: three fintechs looking to innovate financial services

The BSA recently held its first dedicated event on digital innovation: The Digital Mutual. Over 90 delegates attended, with over half of building societies fielding representatives.

The Digital Mutual was the culmination of the BSA's work over the last year to engage with building societies on digital innovation.

A key aspect of this has been assessing the potential impact of Open Banking, which came into play in early 2018. As part of this, the nine largest current account providers in the UK opened up their systems to safely engage with third-party firms.

With a new breed of account information and payment initiation service providers coming into the market off the back of Open Banking, this has the potential to transform financial services - including savings and mortgages.

Three of these firms - Bud, Ecospend and Openwrks - spoke at The Digital Mutual event.

The Financial Conduct Authority has licensed all three firms and they are looking to shake up the way consumers understand and use financial services.

Welcome to the new wave

Bud was set up three years ago and is already working with large banks like HSBC and First Direct. It has also won a Government contract working with HM Treasury on a rent recognition programme.

Alan Walsh, who heads up networks and partnerships at Bud, says that simply put Open Banking will use customer’s own data to provide insights to help serve them better.

“It can be as simple as pointing out that a user is spending 35% more on utility bills in their area compared to the average, then connecting them to a utility switching company without leaving the app,” he says.

Openwrks has also been going for three years. The firm has produced a number of tools to help people to share their banking information with companies they trust.

“That information is then provided to a mortgage firm or debt management firm to better understand their situation and deliver better product and services,” says its CEO and co-founder Olly Betts.

Ecospend has been going since December 2017 and its app, Adzuki, plugs into a user’s online calendar and historical transactions, using the data to make forecasts, provide advice or ring-fence money for unexpected expenses. 

“The key is that the software is intuitive and requires little or no input from the user,” says Ecospend’s managing director William Burton, “so we can overcome the general apathy towards forward financial planning.”

Rushing in would be a mistake

That said, from a customer point of view, little seems to have changed almost a year on from the introduction of Open Banking.

Walsh says that a few thousand people are using its services now, and he predicts that there won’t be mass adoption until around 2020.

“But the possibilities Open Banking bring will create that inevitably," he says.

Burton argues that given the work still to be done on Open Banking and consumer distrust about banking IT in general following major failures over the last year, a slow rollout is not a bad thing.

“Rushing something like this would be a mistake,” he says. “It could ultimately lead to customer mistrust and potential widespread fraud or data loss which would be catastrophic for the whole project.”

Customers are already using Openwrks' technology to securely share their financial information, but Betts says that people using its services do not feel like things have changed.

“This won’t be something that will transform how we behave as consumers,” he says. “What it means is more personalised, faster decisions and a better understanding of customers so we can all access better financial products and services.”

Betts points to Openwrks’ connection with a firm called Fair Way Forward, which seeks to help people budget and manage their finances.

“For people in a distressed situation you can unleash the full power of Open Banking," he says. "Within a few minutes, they can understand how much their life is costing them, build a realistic budget and agree on a flexible repayment plan for their debts.”

The next Kodak or new Netflix?

In terms of how incumbent firms like building societies will be impacted by this type of data sharing, Walsh says that whether it’s an opportunity or threat will depend on how building societies react to it.

“It creates a new distribution channel to sell your products, distributed by traditional competitors,” he says. “But if you aren't in that space, it could quickly become fatal.”

He points to Bud’s own data, which shows that people are interested in simpler user experiences rather than engaging with a specific brand.

“If your brand is not part of that simpler user experience it runs the risk of death - like we have seen in so many other industries, ranging from Netflix v Blockbuster and the Kodak moments,” he says.

Ecospend’s Burton argues building societies could and should be seen as a trusted voice in the Open Banking debate. He adds that they should utilise this trust to build Open Banking solutions that benefit their businesses and - most importantly - their customers.

“Fintech companies are great at building fancy tech but sometimes that technology is not answering a real customer problem,” he says. “Building Societies and the BSA as a whole are in a great position to canvas their customer base and find out what customers really want.”

Who building societies partner with will be vital

In terms of how these new types of fintech companies will transform how we get the best savings product or advice about a mortgage in 10 years’ time, there is general agreement that the days of consumers having to search for the best deal are at an end. The best deal will come to them.

“Platforms like Bud will detect when you should switch mortgage, based on the changes in your circumstances,” says Walsh.

“You have a pay rise and your circumstances change, an algorithm will notify you not only that you could be getting a better deal, but will identify that deal and then automatically switch you to that provider, with your consent.”

Betts agrees while the manufacturers of products will be similar - banks and building societies - what will be different is how customers are acquired and how products are originated.

The key challenge for product manufacturers, he says, will be deciding who they partner with and how they manage that.

However, Burton says that while robo-advisor tools are likely to become ubiquitous in the future, ultimately customers value trust and transparency over everything else.

"Advice about savings and mortgages will be delivered through the medium that offers the most trustworthy and transparent advice," he says.

"Whether that's through virtual reality headsets or sitting down for a coffee with your local building society manager, who potentially might be a robot."


Posted by Robert Thickett on 13 December 2018