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Something important is happening in UK banking. Not bitcoin, but Open Banking, the directive that forces the nine largest UK banks to give third parties access to their current account data.
Open Banking comes into force on January 13 2018, and many in the field believe it has the potential to upend the stagnant banking industry. Or it may consolidate power in the hands of the biggest banks. The point is that at this stage the exact details remain unclear.
That’s why the Open Up Challenge, run by innovation foundation Nesta, is such an interesting experiment. The £5 million competition, which is funded by the banks, gave 20 startups exclusive access to a huge tranche of anonymised current account data to use to build products for small and medium-sized enterprises (SMEs).
Now Nesta has announced the names of the challenge’s 10 finalists, who were chosen by an impressive panel of judges including Open Banking Limited's Imran Gulamhuseinwala. Each will each receive a cash award of £100,000, as well the opportunity to compete for further prizes of £2.5m. (Neither Nesta nor the funders takes equity.)
The group, which is listed exclusively in full below, features established fintechs iwoca and Funding Options, as well as newer startups such as Fluidly and Teller. Together, the products they have created provide some clue what companies might use Open Banking data to build.
“There’s a really wide range,” says Open Up Challenge prize lead Chris Gorst. “If you look at the use cases people were talking about in Open Banking’s early days, there were basically two, aggregation and price comparison. But the innovation Open Banking unlocks is way wider than was first anticipated.”
One theme: making existing services broader and more efficient. Nottingham-based Bizfitech added Open Banking data to its online reputation management tool. Lender iwoca and loan comparison startup Funding Options created tools to let SMEs share bank account data digitally, which should make it easier (and potentially cheaper) for them to raise money.
"A perennial absurdity is that SMEs end up scanning their paper bank statements, only for the data to be manually reentered into the underwriting systems of modern online lenders. What Funding Options built in the Open Up Challenge fixed that," says founder Conrad Ford.
Other, potentially more exciting tools, use the sudden access to financial data to automate mundane tasks, such as tax reporting, or to give SMEs insight into their finances. Ex-Googler Nick Heller's Fractal Labs added cash and metric forecasting to its AI financial assistant. Accounting startup Fluidly developed an "intelligent cashflow engine," which uses a business's past transactions to predict its financial future.
Fluidly founder Caroline Plumb warns, however, that the Open APIs will not magically transform a product. "Open Banking data will be valuable," she says, "but is only one piece of the jigsaw puzzle and to deliver maximum benefits it needs to be used in combination with other types of data."
There is another, looming, question: even if a fintech builds something brilliant, will it be able to reach customers? “That’s possibly the number one issue,” says Gorst. The biggest five banks currently have a combined market share of around 85 per cent of SME accounts. Gorst says: “How you eat away at that keeps these fintechs awake at night.”
One solution to this is to go through qualified accountants, as Capitalise.com proposes to do with its prototype. Another is to build services for the big incumbents. This is the approach taken by Bud, a startup that builds APIs platforms for banks.
"Most SMEs want to manage all of their finances in one place and the most natural place for them to do that is through their bank," says Ed Maslaveckas, co-founder of Bud, which recently signed a deal to provide services for HSBC. "Our software allows banks to plug-in multiple services into bank apps: accountancy software, currency exchange, credit providers, payroll."
But if this raises fears that the established banks will not deliver what they've promised, then fear not: because one startup that made it through to the final is Stevie Graham's Teller. Graham hacks into banks apps to provide 11 banking APIs, direct, as it were, from the source.
"We've interpreted this as Teller not being the only folks concerned that banks are unwilling or unable to deliver their Open Banking obligations on time as much as what we achieved during the challenge," Graham says. "Whether banks do or not deliver is no longer really important. Teller is available today."
Bud: Financial management app: thisisbud.com
Capitalise.com: Business loan comparison: capitalise.com
Coconut: The "bank" for freelancers: getcoconut.com
Credit Data Research: Credit Scoring for SMEs: creditdataresearch.com
Fractal Labs: Automated financial assistant for businesses: fractal-labs.com
Fluidly: Cashflow management: fluidly.com
Funding Options: Business lender comparison: fundingoptions.com
Handle (by Bizfitech): Digital reputation management: gethandle.com
iwoca: Credit for small businesses: iwoca.co.uk
Teller: APIs for bank accounts: teller.io
This article was originally published by WIRED UK
