May 16, 2020

An unlikely partnership: Contis on the rise of challenger banks and the fall of the high street

Cybersecurity
William Smith
4 min
FinTech Magazine speaks to Flavia Alzetta, CEO of Contis, to illuminate her company’s research on the relationship of traditional and challenger banks...

FinTech Magazine speaks to Flavia Alzetta, CEO of Contis, to illuminate her company’s research on the relationship of traditional and challenger banks.

The banking industry is in flux. Long protected from upstart newcomers by virtue of their size and age, the traditional giants are now finding themselves squeezed by technology-enabled challenger banks. The innovations made by these newcomers, in areas such as currency exchange and data accessibility, are leading customers that demand more from their existing accounts. Indeed, some 68% of UK consumers want parity between the digital services offered by banks both old and new.

That’s according to research conducted by the banking and payments services provider Contis. Surveying 2,000 British consumers, the company made some striking findings regarding the evolving banking sector.

One of the chief resources possessed by traditional banks is trust. Contis’ research found that twice the number of people were willing to put their faith in established banks compared to challengers: 60% versus 30%. It’s not a statistic that flatters the challenger banks; nevertheless, despite the lack of trust, a quarter of those surveyed predicted the demise of the high street bank in five years. The matter, however, may not be so cut and dry.

Flavia Alzetta, CEO of Contis, speaks to FinTech magazine about the findings, as well as the nature of the company and her advice to women in the fintech space.

What services does Contis provide?

Contis provides companies with a highly configurable banking and card payments platform for them to white-label as a total solution, or to use individual elements such as card payments. Our clients could be: neo banks who want to offer, for example, digital wallets to consumers; financial institutions that want to offer better banking and card payment alternatives to their clients; or companies who want to use our payment platform for their own payment needs.

What gives Contis an edge over its competitors?

We are a one-stop-shop - clients don’t need to work with different providers to get access to banking payments, card solutions or licences. Contis provides everything from access to UK and SEPA banking rails to debit and prepaid card issuing and processing all under one roof.

We have four key differentiators over our competitors:

  • Real-time - we are a modern provider with no system legacy. This is key to the future of payments.
  • Speed - as part of our Fast Track partnership with Visa, we can get clients up and running within four weeks.
  • Configurability - our platform is modular, enabling clients to choose the exact elements they want to purchase.
  • Reliability - Contis’ platform has a 99.99% uptime, so clients can trust it to be there for their customers when it is needed.

What do you believe high street banks need to do to maintain their relevance in the finance industry?

High Street banks already enjoy high levels of trust (60% in the UK), so firstly, they need to maintain this by ensuring first-class security of customer data and regulatory compliance. The next thing they must do is deliver truly customer-focused products. To do this, they need to listen to the customer and deliver products that resonate. They should also be brave and innovate: if they don’t, they will be marginalised and unable to meet customer demands and expectations.

Challengers have stolen a march over the last few years, so whether it’s building, buying, partnering or poaching - the legacy banks need to respond, and fast. They also need to ensure their legacy infrastructure and natural risk aversion doesn’t slow them down. Contis’ research shows that 50% of banking customers would switch, and one of the main drivers is digital innovation.

How can challenger banks gain the same level of trust from customers as high street banks?

Challengers need to prove they can be trusted to deliver 24/7, that customer data is secure and that they can remain compliant. Not only does this provide the security required of the customer, but also earns the right to partner with traditional financial institutions with established, conservative and well-trusted brands.

How should banks work to form partnerships with FinTechs rather than seeing them as a threat?

Banks are inherently trusted by customers to keep funds safe. Fintechs are expected to provide digital customer-centric services. By working together, traditional banks can leverage fintechs’ agility to deliver products that appeal to all sectors of their customer base.

Finally, there is a considerably lower percentage of women in fintech as opposed to men. Do you have any words of advice to other women looking to progress in the industry?

We live in a very dynamic and rapidly-evolving industry. There is the necessity to drive customer focus, to enhance professionalism in execution and to develop highly talented and performing organisations. To other women in fintech, my advice is: pursue your passion, live according to your values, and don’t listen to the people that tell you that it is not possible to realise your dreams!

 

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May 10, 2021

Open Finance: The future of data sharing

openfinance
datasharing
Cybersecurity
Technology
William Girling
7 min
Commentators from TrueLayer, Nutter, and Zilliqa Capital help us understand the value of data sharing and why Open Finance could be its future
Commentators from TrueLayer, Nutter, and Zilliqa Capital help us understand the value of data sharing and why Open Finance could be its future...

Data: What is it good for?

Although most of us probably don’t consider it as such, data could be regarded as one of the most recyclable commodities on Earth. Every day, consumers produce it, companies collect it, extract the value, transform it into actionable insights, and then create new products and services for the market. From here the cycle continues, and the results it’s produced for financial service institutions (FSIs) so far have been favourable.

Data sharing can be best understood as a consent-based agreement by which privacy is waived in a limited capacity for commercial purposes. Customers gain products that have higher relevance to their lives while FSIs reap enhanced marketing and development opportunities. In Deloitte’s article ‘The next generation of data sharing in financial services’, the overall FSI benefits of data sharing are summarised into three categories:

  1. Inbound data-sharing (acquiring data from third parties) = enriched decision-making.
  2. Outbound data-sharing (sharing owned data with third parties) = enabling companies to draw on capabilities otherwise undeveloped within their own organisation.
  3. Collaborative data-sharing (inbound and outbound sharing of similar forms of data) = allowing companies to create richer, larger and more comprehensive datasets than siloed efforts could achieve. This is particularly important as forming ‘data lakes’ becomes more popular.

And yet, despite the mutual beneficiality of data sharing, there still exist several potential drawbacks and aversions to overcome. For customers, there is a persistent reluctance to share sensitive data - Statista found that approximately 44.3% of US fintech app users experienced some degree of discomfort, whether related to account balances, loan history or investment information. Worse, a Harris Poll survey conducted on behalf of IBM found that only 20% of respondents “completely trust” organisations to properly maintain their data. With incidents of compromised security involving major companies like Capital One and Microsoft still making headlines, this is, perhaps, not unsurprising.

Benefits of sharing data

For institutions: better decision-making, access to third-party capabilities, greater scale of data

For regulators: support for innovation and competition, enables effective system oversight

For customers: access to higher quality and more efficient products

Drawbacks of sharing data

For institutions: competition hindered by lack of secrecy, could breach privacy regulations, could potentially alienate customers by appearing ‘omniscient’

For regulators: possible breach of customer privacy

For customers: personal data could be mishandled or misused

(Above from World Economic Forum) 

Data sharing is also not without risks for FSIs themselves; creating such a forthcoming environment could erode competitivity by handing too much information to rivals, complex and evolving privacy regulations like GDPR and PSD2 could be breached by unforeseen tech developments, or companies could simply alienate clients by appearing too omniscient for comfort. 

Among VC firms and investors data sharing is an important decision-making component, particularly during early-stage investment. Michael Conn, Chairman, CEO, and Co-Chief Investment Officer at Zilliqa Capital, explains, “It is important that the target investment team be open and willing to share the data reflecting their performance to date, the market opportunity and any other metrics that would help demonstrate why they are a better investment than another in the same space.” However, at the same time, Conn clarifies that the value of data today can sometimes be overemphasized; for Zilliqa Capital, the quality of a potential investment’s team is often more of a determining factor. “The fact is that most, if not all businesses, will at some point be forced to pivot away from their initial plans - see Amazon. It is just not possible for data analytics, at least as of now, to prove itself superior to gut instinct when evaluating the quality of an investment target’s team.”

If not fully utilisable as a resource for decision-making, then, what’s needed is a re-evaluation of data sharing, both in terms of its place within modern finance and the methods by which its present shortcomings can be overcome. Open Finance and API (application programming interface) technology could represent such an opportunity. 

Open Finance’s value proposition

“Open Finance is all about empowering customers,” explains Jack Wilson, Head of Policy and Regulatory Affairs at TrueLayer. “It gives customers the ability and the right to re-use their financial data in new and innovative ways. It does this by giving a role to third-party providers, who securely retrieve data and put it to work for the customer.” These actors can do so in a variety of ways, such as:

  • Consolidating multiple held accounts into a unified view
  • Facilitating electronic data transmission that eliminates the need for physical documents when applying for financial products 
  • Using account data as a form of identity verification

These capabilities are utilised in one of Open Finance’s most widely discussed aspects: Open Banking. Defined by McKinsey & Co as “a collaborative model in which banking data is shared through APIs between two or more unaffiliated parties to deliver enhanced capabilities to the marketplace,” Open Banking allows for a more direct consumer-bank relationship. The APIs themselves can be of three distinct models: public, partner and internal, each of which has specific functions and benefits. Regarding the latter, these include overall cost reductions, increased operational efficiency, enhanced innovation through collaboration with developer communities, and greater security.

“Consumers are increasingly demanding financial data aggregation services through APIs because it makes personal financial management much easier,” says Thomas J. Curry, Co-Chair of the Banking and Financial Services group at Nutter and former US Comptroller of the Currency. “Banks and fintechs each want to be the primary portal for financial services and they are competing to keep or obtain the customer relationship.” 

Types of API

Public: APIs used by external parties to develop new apps and products. These often facilitate innovative results as a consequence of broader community engagement.

Partner: These APIs create a more integrated connection between business partners, suppliers, etc. They offer better security, lower operating costs, and enable API monetisation opportunities.

Internal: Only used by developers within a single enterprise, internal APIs offer cost reduction, better efficiency and greater security. However, they also lack the potential with regards to integration and innovation.

(Above from McKinsey & Co)

“Open Finance, which broadens out the types of accounts accessed, could offer yet more benefits for both customers and companies,” adds Wilson. He cites the following:

  1. Aggregated savings and investment data, bringing more holistic financial oversight to consumers.
  2. Granting access to data that can bring value-added services, such as financial advice, “robo-advice”, better ID verification, and KYC.
  3. Empowering third parties to carry out fund transfers between customer accounts (savings, ISAs, investments, etc) and initiate account switching.

Security: The elephant in the room

Carried out in its most ideal form, then, Open Finance’s benefits for both customers and companies makes it an attractive proposition. However, there remains what McKinsey calls the topic’s “elephant in the room”, security. Data sharing in any capacity should be a central concern, with each dataset’s value accorded an appropriate level of protection, and customers need to understand how and why some data is used. “[I]nformed consent requires understanding the implications of sharing before approving —no small feat when the reflexive clicking of ‘I Agree’ on an unread set of terms and conditions is standard,” said McKinsey in ‘Data sharing and open banking’. Curry believes that cybersecurity and the protection of data form the major concerns for fintechs and banks regarding APIs’ functionality. “[In the US] Section 1033 of the Dodd Frank Act makes it clear that consumers have a right to their financial information. Some progress has been made in developing voluntary standards for APIs but regulatory clarity is needed. The Biden CFPB (Consumer Financial Protection Bureau) will likely develop a more concrete regulatory framework for APIs.”

Therefore, it seems clear that, in addition to general clarity regarding data sharing policies, what customers really need are examples that demonstrate why APIs are beneficial and what Open Finance can do for them.

A recent collaboration between TrueLayer and UK digital bank Monzo provided one such demonstration. With customers using Open Finance as a payment method for online gambling, Monzo needed a solution to protect its at-risk customers by blocking transactions to certain gaming sites. TrueLayer was brought on board to implement an enhanced API capable of notifying the bank whenever a customer with gambling restrictions on their account attempted to pay via Open Finance. TS Anil, Monzo’s CEO, praised the API and stated that it was “simple to build, proven to work, and will help protect hundreds of thousands of people.” The finance industry’s accumulation of such examples will be pivotal in convincing consumers that data sharing can be responsible and useful for safeguarding them.

Data sharing through Open Finance is ultimately a path towards greater convenience, better products and services, and significantly cheaper operations for FSIs. Making sure that customers are aware of these benefits, concludes Wilson, will be the aim of the game. “At the very least, dealing with physical paperwork and documentation in financial transactions will become a thing of the past."

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