Ahead of the BSA's first Digital Mutual event, three fintechs talk about building societies adapting to Open Banking.
These days, whether you are talking about mortgage lending, financial advice or savings, it’s practically impossible not to get onto the subject of digital innovation.
The underlying principles of Open Banking that came in at the beginning of 2018, with the nine largest current account providers in the UK opening up their systems to safely and securely engage with third party firms, have the potential to transform financial services, whether you’re taking out a mortgage or savings deal.
That is why the overriding theme of the BSA’s first dedicated digital event on 18 October, The Digital Mutual, is looking to the future and where building societies are heading beyond Open Banking.
A big part of how societies shape their future services will depend on how consumers respond to the new breed of account information and payment initiation service providers coming into the market.
Three of these firms - Bud, Ecospend and Openwrks - will be talking at BSA’s Digital Mutual event as part of Fintech Showcase session.
All three are now licensed by the Financial Conduct Authority and are looking to shake up the way consumers understand and use financial services.
Ahead of the event, we asked all three firms whether Open Banking is a threat or opportunity for building societies and how they can adapt to this new wave of digital disruption.
Welcome to the new wave
Bud was set up three years ago and is already working with large banks like HSBC, First Direct and has won a Government contract working with HM Treasury on a rent recognition programme.
Alan Walsh, who heads up networks and partnerships at the firm, says that simply put Open Banking will use customer’s own data to provide insights that can serve them better.
“That can be as simple as pointing out that a user is spending 35% more on utility bills in their area compared to the average and then connecting them to a utility switching company without leaving the app,” he says.
Openwrks has also been going for three years, and is already helping people to share their banking information.
“We are then providing that information to a mortgage firm or debt management firm to better understand their situation and deliver better product and services,” says its chief executive officer and co-founder Olly Betts.
Ecospend has been going since December 2017 and its app Adzuki - which is the name of a Japanese bean known for its health properties - is looking to help people plan their finances better.
Plugging into someone’s online calendar and historical transaction data, Adzuki uses these tools to make forecasts and advice, or ring fence money for unexpected expenses.
“The key to it is that the software is intuitive and requires little or no input from the user,” says its 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 10 months on from the introduction of Open Banking.
Walsh says that a few thousand people are using its services at the moment and he predicts that there won’t be mass adoption until probably 2020.
“But the possibilities Open Banking bring will create that inevitably," he says. "It’s something I truly believe in."
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 roll out 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.
“I think that is a good thing,” he says. “This won’t be something that will transform how we behave as consumers. 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 a flexible repayment plan for their debts.
“Open Banking has real benefits is everyone in society, for people in financial difficulty, those that don’t have credit files and can’t get on the housing ladder.”
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 the 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 and utilise this trust to build Open Banking solutions that benefit their businesses and most importantly the customers that they serve.
“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 you 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 payrise and your circumstances change, an algorithm will notify you not only that you could be getting a better deal but tell which deal and then automatically switch you to that provider with your consent.”
Betts agrees while the manufacturer of products will be similar - banks and building societies - what will be different is how those customers are acquired and how products are originated.
It is here he sees the biggest opportunity from the big tech giants like Amazon and Google.
“Amazon and Google own us anyway,” he says. “Why wouldn't Amazon package up mortgages? They know what I spend my money on, they’re in my home on Alexa, why would they not be the entities I ask for mortgage advice from?”
The key challenge for product manufacturers like building societies, 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."
To hear more from all three speakers, a very limited number of tickets are still available for The Digital Mutual event on 18 October at Kings Place in London. Click here for more details.