Fintech startups have fired back against Starling Bank’s CEO after she branded open banking as a flop that’s too costly, “clunky” and said businesses struggle to make money from it.
Anne Boden made the statement to MPs on the Treasury Committee during a hearing earlier this week, claiming insufficient demand and lacklustre services have turned the open banking rollout into a failure. “Open banking has not been a success,” the neobank boss said.
Fintech startups, particularly ones either developing or using open banking services as part of their offering have now shot back against the Starling founder’s remarks.
“Boden is wrong,” James Pursaill, co-founder of open banking-powered social lending platform Plend, tells Verdict. “Open banking has not flopped.”
Open banking so far
The UK’s open banking rollout dates back to 2015 when the European Union announced the second Payments Services Directive, or “PSD2”. The regulations forced the trading bloc’s banks and financial service providers to forgo their monopoly on customer data.
From now on, customers would be able to give their consent to share their data with third-party providers. The idea was that it would nurture fair competition and set the scene for startups to scale and challenge incumbent players.
In the UK, the Competition and Markets Authority (CMA) backed the implementation of open banking, which was rolled out in 2018, via the temporary entity the Open Banking Implementation Entity (OBIE).
As a side note, the future of the OBIE has grown uncertain after an independent investigation recently unearthed a culture of bullying, intimidation and poor governance within the organisation.
Open banking has already birthed a plethora of startups like TrueLayer, Keebo and Credit Kudos that have raised multi-million rounds. TrueLayer was also named as one of the predicted big winners in GlobalData analysts’ predictions of the banking industry 2021 report earlier this year.
Starling’s rivals Monzo and Revolut have offered premium open banking services enabling customers to view data from other bank accounts inside their apps. Admittedly, though, those services haven’t really gained much traction.
“Open banking has not been a success,” Starling CEO says
Boden said the implementation of open banking in the UK has failed to break big banks’ hold of the market.
“Customers are not influenced to switch banks because they can take their data with them,” the neobank boss said. “Customers switch banks because they want a better service and are prepared to lose one bank and go to another and that’s why people join Starling.”
Despite the multi-million rounds raised by startups, the former Allied Irish Banks executive suggested that the rollout has been a flop for open banking startups too.
“Yes, there were rafts of fintech companies set up to use this data, but nobody had a business model because nobody is prepared to pay for that data,” the Starling CEO said. “A consumer doesn’t want to pay an additional fee to a fintech so they can consolidate that data. And above all of that, the implementations of open banking that we have are clunky. You know, you wouldn’t want to use them.
“So I think we have to be very, very careful that we just don’t keep pushing on at this because we think it’s going to get us somewhere. Sometimes you have to realise that it’s not actually solving the problem.”
“Boden is wrong”
Now, fintech startups have hit back against the Starling CEO’s suggestion that open banking has been a failure.
“Open banking data is incredibly powerful,” Pursaill claims, pointing at Credit Kudos’ research that suggests that open banking enables a four-times faster evaluation time of a person’s financial behaviour and leads to a 15% increase in acceptance rates and 5.7% reduction in default rates.
“It’s certainly true that the adoption has been slow – but the technology has only been live since November 2018, so we’re still in the early days of understanding its full potential,” Pursaill adds.
“There are hurdles to overcome in the widespread adoption of open-banking data. But the challenges in spreading wider adoption do not mean the data isn’t a game-changer – it just means those tricky challenges are worth the effort of overcoming because the rewards for getting there will be incredible. Three years isn’t long enough to judge the success of a new technology. Twitter, to take one example, had less than 25 million active users in its first three years.”
The sentiment has been backed by the likes of Rolands Mesters, co-founder and CEO of open banking startup Nordigen.
“Open banking is the opposite of a failure,” Mesters tells Verdict. “It has weeded out the use of screen scraping across the industry, which has made financial data sharing significantly more secure. Because of this we are no longer sending our banking passwords to third parties in plain text in order to share our banking data.
“Open banking has also introduced a level of standardisation across the industry, which has made it easier for third party developers to build solutions that will eventually compete with the high street banks.”
Mesters also dismisses Boden’s suggestion that there is insufficient demand, saying open banking is “following the traditional technology adoption cycle – typically starting with innovators and early adopters and will inevitably reach the late majority of the population.”
Alex Mifsud, CEO and co-founder of banking SaaS developer Weavr.io, argues that Boden’s comment were premature.
“Open banking is a foundational idea which will take longer to have an impact than its original boosters have predicted but will in time be far more disruptive than many expected,” Mifsud tells Verdict.
“[Open] banking hasn’t been a failure,” Paul Marcantonio, executive director of the UK and western Europe at payment processing provider ECOMMPAY, tells Verdict. “Instead, it has the potential to create an entirely new relationship between consumers, businesses, and banking by enabling secure and consented data sharing between banks and third parties.”
Not the first neobank CEO to be sceptical
Boden is by no means the first neobank top dog to lament the open banking rollout. In March 2020 Monzo’s then-CEO Tom Blomfield, one of the most prominent figures in the new challenger fintech sector, claimed that open banking hadn’t produced any innovation at all.
Instead, the neobank founder argued that open banking had only imposed “massive costs on [challengers] like ourselves to implement standards nobody uses.”
“The positive effect of open banking on innovation has been nil,” Blomfield told The Telegraph. “I don’t see any businesses based on open banking in Europe whatsoever.”
TrueLayer’s CEO Francesco Simoneschi told Verdict earlier this year: “[I] was surprised to hear an executive and a forward thinker, such as Tom, just put the work of many in the trash bin so quickly without a deeper analysis that I think he is very capable of doing.”
The nine biggest British banks like Barcays and HSBC have also complained to the CMA about having to contribute £26m to the promotion of open banking this year alone, according to Financial News.
It’s understandable then that some fintech chieftains leaped to Boden’s defence, agreeing with the Starling boss’ assertion that open banking is not all it’s been drummed up to be.
“I think there have been pretty clear challenges for open banking since inception,” Andy Renshaw, SVP of product management at financial risk management startup Feedzai, tells Verdict.
“Namely, without a clear proposition on what is better for customers and without a compelling case to adapt what the industry does today – for either ease of use, security or value – then these types of industry-led initiatives are destined for failure at the mass consumer [and] customer level.”
Let’s wait and see
Ivan Zhiznevskiy, the 3S Money CEO who recently argued that many fintech companies are overvalued, tells Verdict: “Boden isn’t wrong per se. Open banking is a raw technology. The data shared is inconsistent and there’s no real use cases outside of seeing other card balances on mobile banking apps.
“Does this bring me much value as a consumer? Not really, no. But open banking as an idea itself is very good. Why wouldn’t we want the seamless movement of money?”
He estimates that the sector is about five years away from reaching its potential.
“I believe that we are at the cusp of leveraging the true potential of open banking data,” Michael Vanaselja, CEO of Keebo, tells Verdict. “The technology is now at a level where we can comfortably rely on it and apply it to new use cases that hadn’t been considered four years ago. I agree with Anne that customers want better services and experiences.
“At Keebo, we leverage open banking data to open up access to credit and help customers build their credit and wider financial health. We are only starting to scratch the surface – this new experience and approach to credit building wouldn’t be possible without open banking data.”