A Tech Start-up With a Banking Licence
The headline video introduces how Starling Bank is a pure Cloud-based, mobile only digital bank. They believe Open Banking will increase competition and innovation throughout the market and as a result give customers more choice, more products and better prices.
Megan Caywood, previously Chief Platform Officer for Starling now MD Global Head of Digital Strategy for Barclays, describes them as “a tech startup with a banking licence.” Megan describes the fundamental transformation being the shift of data ownership, from the banks to the customers themselves.
This is the ‘Platformification’ of the banking sector – The same type of intuitiveness that consumer tech companies like Facebook, Google and Apple have brought to market via API-driven software development, now being pushed forward into banking by these regulations.
Platformification – Banking as a Service
At 16m:40s Megan makes the seminal point, about the importance of their critical role of their technology platform, and how this has enabled a ‘Banking as a Service‘ paradigm that is driving the ‘Platformification’ of banking.
This is central to their competitive advantage, not only powering user-centric mobile only and Cloud-based services, but enabling a very low cost basis and high speed agility so they can outperform traditional banks. Within their first 475 days of production they published 377 platform releases through Continuous Delivery practices.
Speaking at AWS re:Invent 2018 Megan and Starling’s Head of Back Office Engineering Martin Dow provide a detailed case study showcase of how they have built an entirely Cloud-based digital bank.
In the first session Megan sets the scene, describing how Starling was founded around a goal of bringing a technology-centric Platform model to the UK banking sector. Traditional banks had fallen behind in terms of tech innovation and no longer compared well to the real-time, intuitive apps consumers had come to expect.
It’s not just the use of the same technology innovations but importantly also the same business model. Inspired by Uber and Airbnb Starling is seeking to replicate the same digital marketplace approach, where outside of their core current account product other services like mortgages and loans would be plugged in from partners from that marketplace, via API integrations.
A feature central to an improved user experience is ‘the Pulse’, a real-time feed of the customers account. Similarly seeking to eliminate other common pain points opening a new account can be achieved in less than three minutes by downloading from the app store, instant notifications and rich data analysis of their spending, and Card Control options to lock and unlock cards.
In contrast to their peers who also launched at around the same time, Starling took on the full technology estate. Others would opt for a lighter tech approach and no banking licence, concentrating purely on the front-end app experience and building on an off-the-shelf banking system such as Wirecard.
Instead Starling saw this backend system as another opportunity for competitive advantage, gaining a full banking licence and building out their own capabilities so they could offer key features like faster payments and location awareness; this enables auto-detection of the customers location and adapting the data feeds accordingly, such as showing transactions in local and home currencies.
App store partners
From 40m:30s Megan walks through Starling’s developer portal, where partners can sign on and begin developing their own apps for inclusion in Starling’s marketplace, following a process of due diligence to ensure they implement the required compliance best practices such as encryption.
Highlighting the nature of the opportunity a number of possible value add scenarios are suggested, from integrated direct payments, account aggregation, credit checks and loyalty card updates.
This program exemplifies the Platform marketplace model applied to banking. Apps are interconnected via the OAuth protocol, making possible a plethora of dynamic feature possibilities.
For example loan providers can pre-qualify what amounts you would be eligible for by reading your banking data, and partners like Raisin have embedded the new account opening process into their online savings marketplace.
Cloud Native Banking
From 8m:15sec Martin Dow walks through the technology implementation that has made all this possible, in essence describing a scenario of ‘Cloud Native’ banking, a term that has emerged from the tech sector to describe an approach to software development that is entirely built upon IaaS and PaaS capabilities offered by providers like AWS.
Pioneered by digital natives like Netflix it reflects Megan’s core thesis of bringing this type of tech-powered business model innovation to the banking sector.
For another degree of more technical detail this presentation from Jason Maude, Senior Developer, explores the details of the role of Java in this scenario.
Open Banking 2.0 -Building the Bank of the Future
Not all digital banking innovators see this approach as the way forward.
In this 2018 Hong Kong FinTech Week discussion panel Megan and Chad from Revolut Bank share their different experiences and strategic considerations for starting up challenger banks; for example how Starling decided to acquire a full banking licence to launch versus their competitors who opted instead to concentrate first on customer acquisition through early digital products.
From 8:00m Chad makes it very clear he doesn’t believe in the marketplace approach, to the extent he feels it is bullshit, and instead believes consumers want the digital banks to proactively figure out these types of value add features and directly build them into their apps, eliminating the hassles for customers to sign up to additional third party services.
However it’s quite likely both are right – There will be a plenitude of different types of customers who have different preferences that each is better suited to.
There’s certainly no doubting the powerful paradigm they have defined, what they describe as ‘Open Banking 2.0’ in this Rebank podcast, and the resulting progress they have consequently achieved.
This includes expanding their white label offering, signing deals with Telleroo, PelicanPay and Vitesse, with MoneyHub to integrate Starling into their payments gateway, and working with Anorak to add a life insurance product. Anorak analyses their bank transactions to offer advice on how much life cover they need and from this matches the user with the best policy from the major insurers.
A particularly inspiring example is their integration with YoYo. This demo walks through a very compelling example of how it enables retailers to build a highly integrated and personalized rewards scheme.