Victor Rivera

Tue, Oct 30

Mind the Politics - Fintech: a new wave of everyday banking – reloaded by Open Banking


Earlier this month, in October 2018, the Company’s representatives have visited the PayExpo conference in London. Inspired by what we have seen, we want to share our experiences and guide you through the changes the financial sector will face in the coming years. Fintech industry represents new technologies and innovations aimed to challenge the traditional banking industry by fulfilling the needs of the new market that prefers higher customer experience and instant services, other than the older market that used to rank high a strong balance sheet and a long-term relationship with a branch manager. As PwC reports, 77% of respondents in industry globally believe that in next three to five years businesses internal innovation efforts will increase, resulting into better services available for the customers.

Shaping the banking future:

You have all probably heard about such giants of the fintech industry like the EU-based Revolut, Monzo, N26 or Curve. They are united by a common goal, - making your everyday payments easier, faster and with an outstanding costumer experience, it results in traditional banks becoming nervous. The secret of their success (e.g. Revolut has 2.75 million users, Curve the re-bundling of payments has more than 1 million clients and Monzo is close to raise $50 million) is that you can open your current account on your phone, just in a matter of a few minutes and a couple of pictures of your ID and face. Moreover, with Curve you will need just one card to unite all your other traditional banking accounts – and as an average person usually carries several – it will definitely make your life easier.

As these apps do not have physical consumer branches and all the costs of an old-styled bank, they can dedicate resources to improve and innovate their costumer experience. As clearly said by Alexander Weber of N26 at the PayExpo conference, “we want our clients to love us because of their experience and because we make their live easier, we are not interested in paying for clients with points or interest rates”.

Not only these apps attract young professionals and technology-orientated enthusiasts, they also help travellers. One of the cornerstones of the new fintech start-ups is to provide users with very good foreign exchange rates and zero-commission ATM withdrawals, which will save you 2-3% in some cases. In fact, about 87% of people would prefer fintech style of banking, but many still face restrictions – such as geography, government positions and, of course, the need for substance in order to acquire a license.

Interestingly, in the discussions with PwC about 60% of bankers acknowledged that products related with personal finance are at risk of losing clients because fintech companies presents products with intuitive product design, are easy to use, 24/7 accessible and faster.

Old good players:

Therefore, it is not a surprise that while these EU-based start-ups are now looking to expand further, solving at least a geographical restriction, with the US and Canada being the priority destinations, other international companies are trying to follow up with the changes. Big international banks such as J. P. Morgan and Goldman Sachs are developing their own mobile platforms and Chinese payment companies such as UnionPay and AliPay are gaining momentum in their approach to enter the EU market. In October 2018, UnionPay will start issuing its virtual prepaid banking cards in the UK, and this company has already gained more than 60% of market share in all major economies of the EU.

While Chinese companies enter the market, they will face some challenges, as, for example, not all of the EU retailers are accepting their apps and QR codes are not really popular in EU. However, the fact is that with QR codes you can pay off-line, and that it is cheaper, so we might see it in the future, especially, as Chinese tourists spend the most on shopping, it is important for them to be able to use efficient payment platforms. That is why Chinese nationals may find themselves using fintech start-ups (if they reside in the EU or visit the Union frequently enough) as it is hard for them to open an actual bank account, while fintech industry follows less regulations.

Open banking:

The future has never been brighter for such fintech start-ups, as the UK and the EU have recently introduced so-called Open Banking regulation (PSD2 in the EU). This regulation makes it legal for standard banks to share the user's data (if a user agrees) with the third-party services providers (Fintech) – allowing customers to share their data, compare accounts, access new products, but more importantly, to get the user’s financial information organized, so the user can plan and make smarter decisions. Not to mention that the user can stop the access of its data at any time.

As Yves Mersch, Member of the Executive Board of the ECB said in February 2018, Open Banking’s objective is to foster innovation and enhance competition. Small business will benefit hugely due to the Open Banking regulation, as it will allow business owners to keep track of all the payments and services at one place, which will save time dedicated for bookkeeping, and will free resources to concentrate on what really matters. Moreover, at some places banking branches are simply out of reach, and by using fintech apps small business owners in the remoted areas will allow for more sustainable growth.

However, many people still do not even know about the Open Banking initiative and how it works. It is important for the governments and companies to market these developments properly and responsibly, allowing customers to do the proper research before choosing a right fintech company and deciding whether to share their data or no.  One way or another, the UK pushed the hardest for this initiative to be passed in the EU, and the government is likely to increase its support for the initiative after Brexit, which promises an opportunity to grow faster for companies in the UK.

How one can put it – This policy might bring the same impact that the Telecom industry faced when a user could hold on to the phone number while changing its telecom service provider.

Final remarks:

In conclusion, for those who are interested in payments and multi-currency accounts, the good old days of having an account at a bank with a strong balance sheet and a trusted branch manager are over. More importantly, the days were you had to download the app of your bank to do things remotely, but having to call the branch or support service because the app did not fulfil your needs are over too. The future of banking is where you can open a bank account in minutes, manage your account via AI bots that are trained perfectly for customer service and not paying ridiculous fees for things you do not use, while having very good fees if converting your currencies.

We expect to see in Europe big developments in the financial industry during the next two or three years, with people shifting towards user-friendly fintech start-ups, and traditional banks re-evaluating their value proposition.  The banks will remain, but the market share pie will be cut by more players, and it will provide us with good competition, resulting in better and more innovative financial products.