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Open Banking – Scotland’s Global Opportunity

An overview of the massive Open Banking trend, and the global opportunity it presents for Scottish digital entrepreneurs.

There’s no doubting or missing the rise and rise of the FinTech sector.

In August last year Financial News reported on the massive funding rounds of ‘challenger banks’ like Monzo, raising over £200m, with £ hundreds of millions more planned. Starling Bank has taken in rounds of £30m and £75m; Revolut is planning an additional £390m on top of $800m thus far.

As the Scotsman wrote the race is on for Open Banking, and there is a unique opportunity for Scotland’s Fintech innovators to lead it, a viewpoint written by one of the local pioneers Money Dashboard.

The country has a deep history and presence in banking, and a highly innovative tech sector – The intersection of the two offers a hyper-accelerating opportunity for Scotland’s economy.

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It’s reached a scale now where FinTech startups are the ones buying banks.

Speaking at the Wired conference the Revolut CMO Chad West talks through this massive wave of disruption, who describes it as the inevitable consequence of traditional banks having failed to make their offering open and transparent to customers, and failing to give them control over their money.

As FinExtra writes banks are living through an “extinction phase” as they look to survive the asteroid that is digitisation and the new competitors it ushers in, warns Stephen Bird, global CEO, Citi, speaking at the Hong Kong Fintech Week conference. Threats will come from all angles.

Research from The Financial Brand shows just how important and impactful the trend will be for the banking sector:

 

The nature of this disruptive threat is exemplified particularly by the entrance not just of startups but of ‘big tech‘ players like Apple and Google, set to offer current banking accounts.

The threat is considerable. Not only do digital banks offer the type of convenient services that consumers crave in this day and age, furthermore new challenger banks are trusted more than the traditional big five. Of course existing players can harness the same forces and utilize their legacy to their advantage. For example Western Union is digitally transforming themselves for a new era of global money transfers.

Open Banking – Scotland’s Global Opportunity

At the heart of this disruption is ‘Open Banking’. The term refers as you might expect, to the use of open standards within the banking sector, to encourage and enable better interoperability between the banks, to achieve more integrated consumer services.

Banking Technology explains What You Need to Know, and Michael Gardner provides this excellent overview, highlighting the challenges and opportunities the trend will present, how banks will need to master better UI strategies and the use of APIs. The Open Bank Project lists a plethora of exciting startups pioneering different niches it exposes.

The enabling catalyst is open standards. The Open Banking Implementation Entity was created by the UK’s Competition and Markets Authority to create software standards and industry guidelines that drive competition and innovation in UK retail banking.

These standards enable banks to adopt more flexible API-based methods of systems integration, highlighted by the perfect example of the point of this article, a trend being pioneered by local Scottish banks.

In this documentary experts including Kevin Hanley of the RBS explain how they’ve shifted from ‘point to point’ integrations between business systems, to APIs because these are more efficient and critically, enable the open ecosystems that stimulate creative innovations that power new products that customers value.

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FinTech Scotland leads the industry charge, recently being awarded with European cluster status, a formal recognition for its excellence by the European Secretariat for Cluster Analysis (ESCA), which benchmarks economic clusters across Europe. As they report, the number of SMEs in the sector has grown by 60%.

Sharing of data between banks will encourage smarter services, better informing consumers about more competitive offerings. Money Dashboard offers an exemplar of the new integrated services it makes possible, providing an app that enables consumers to make informed financial decisions, such as planning to reduce their debt or book a holiday.

Similarly Edinburgh-based The ID Co. is another startup pioneering this type of innovation. Their DirectID Bank Data Suite offers a hosted solution to very easily access customer bank data via a widget, automatically having their transaction data categorised and instantly viewing insights into their finances.

On their blog they explore the process of building new services via this integrated capability, and offer 11 predictions for the further disruptions this will enable.

So what’s it like to work at a leading Open Banking pioneer?

In their video Money Dashboard provide a short overview of their pioneering history that has seen them lead at the forefront the evolution of the Open Banking industry.

They attribute their success to their company culture of valuing team players, of empowering individuals to make decisions and move fast to grow the success of the business, while also cultivating an environment where there is an ethos of caring for your team mates.

Money Dashboard has a powerful vision of democratizing finance such that they help their customers build their financial resilience and knowledge.

Conclusion – Scotland’s Global Opportunity

The economic opportunity for Scotland is myriad.

For starters a massive growth in jobs in the sector. Lloyds, FNZ, Tescos Bank and the TSB are all scaling up large scale recruitment drives for digital development centres.

Then there is the startup opportunity. New digital apps are leveraging the ability to better interoperate and share data to better empower customers with new features that they value, such as Lloyds announcing they are the first to utilize it for credit card and savings apps. Scotland has a wealth of expertise in fields like mobile app development that could easily create many more such innovations.

Scotland experiences the same banking needs locally that defines market needs globally, presenting the opportunity for a powerful bootstrapping cycle of pioneering and proving them at home first, then exporting those solutions internationally.

For example half of Scotland’s smaller firms believe they get a raw deal from their banks, writes The Press and Journal, and the ongoing closure of branches and ATMs impacts communities heavily especially those that are remote. Each of these pain points is a fertile opportunity area for innovative solutions to these needs. Renovite is a Fintech building innovations for these types of challenges locally in Scotland, moving ATMs into the Cloud, meaning entirely new ways of deploying them will be made possible.

In short it is a near endless ocean of opportunity that is limited only by our imagination, the richest asset Scotland possesses.

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