Open Banking PTBR

The startup gets hundreds of thousands of users that the bank had spent millions of dollars to acquire, all for the cost of an mobile app. This is the first step outlined above. Once startups build out their customer-experience app and get traction, they become suppliers, with a certain degree of market power. They can now partner with startups servicing other parts of the financial services value chain. In the U.S., collaborations between Funding Circle and NerdWallet have meant that together the fintech startups are able to offer a more fully rounded suite of small business banking products to their customers. This is step two of the disruption pattern. Banks often felt "disrupted" by these emerging players. Banks are large enterprises, like huge tankers that can't change course as rapidly as startup speedboats. They have to take their full vertical stack with them when implementing changes: that infrastructure, those assets, the distribution channels and legacy content all weighed them down when making any change to add a feature, partner with a new player, or reposition themselves. It took a ton of minor changes at each level of the banking vertical, which slowed them down against nimble startups that were focusing solely on customer experience and releasing new features every 2, 3 or 4 weeks. As they have a current infrastructure, assets and distribution networks, banks have the burden of their organizational and technological legacy anytime they want to innovate in the customer experience field. Banks can't be a digital player against startups if their product iterations are every 9-12 months. Four years ago, when first publishing the Banking APIs: State of the Market reports, we noted that banks were in a process of reorienting their architecture towards microservices and APIs. While some leaders have completed that work, the survey results and interviews conducted this year suggest that the majority are still only halfway through that process. Meanwhile, startups that built themselves up quickly as one app codebase and started to hit growth trajectories, have faced similar problems with managing legacy as the large enterprises. Looking at how some of the challenger banks are releasing APIs — with one API to do payments and transactions, for example — we wonder if they will face similar issues down the track with an unwieldy do-everything API that cannot be monetized by separate capabilities and that creates headaches for version control, and for adding new features. But other fintech startups have been savvy enough to think about that from the start, or at least early on, and have leveraged APIs as their building blocks to create products and services. This future-proofed them as they scaled up and out. WePay did so to such an extent that they were bought by JP Morgan Chase as a complete API payments product that could then be integrated into the bank's infrastructure. Others like TransferWise were able to create new partnerships. Originally, they had joined with Challenger Bank N26, but that arrangement now appears to be on hold, according to TechCrunch, and instead TransferWise has been able to sign partnership agreements with leading banks like the French group BPCE. The UK's TrueLayer seems to be taking this stepwise approach by building a data API for transactions, identity and account information first, and then moving onto a payments API in their roadmap. They are also focusing on the UK market first before then moving on to Europe. LUXHUB started in Luxembourg as a fintech spun out of a partnership amongst that nation's major banks. LUXHUB is now building out PSD2-compliant APIs as well as compliance-as-a-service features so that other banks do not need to manage the regulatory requirements of confirming and auditing third party providers. While LUXHUB was originally started for Luxembourg banks, they have ambitions to become a European-wide PSD2-compliant marketplace for open banking. This is how these startups are now becoming sector- wide platforms: by either teaming up with other fintech startups to extend their financial services product range, or by partnering with (or being acquired by) banks who need their product development speed and customer engagement skills as much as they need their readymade API infrastructure. Banks have a lot of muscle they can use to ward off any potential fintech disruptors. They may not have the agility to be solely customer-experience focused and test new engagement as iteratively as startups, but they have a wealth of industry knowledge; plus they own whole tracks of the vertical pipeline from infrastructure, assets, distribution systems, content, and products. They also have an existing customer base that they can engage with to maintain their market position. This is definitely the case in some jurisdictions like in the Scandinavian countries, where mobile banking usage is highly regarded and banks still have the customer engagement capacities to keep customers loyal. In other jurisdictions, banks are losing out to tech behemoths like Amazon who are not only widening their range of financial services (particularly across payments and lending), but are also able to stay laser focused on quality experience in order to keep the trust of their customers. In 2018, the question is not so much will banks use their industry strength and resources to fight the startup 06 State of the Market report 2018

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