“The original aim of the Competition and Markets Authority’s order was to provide consumers with more choice, create better customer engagement with banking services and stimulate innovation across the financial sector,” Jim Wadsworth, Senior Vice President of Open Banking at Mastercard, said in an email interview with International Finance. These are all important efforts, which have made worldwide open banking adoption a required norm.

Today open banking in the UK is the most advanced in the world. All of the CMA9 banks have rolled out open banking APIs, with some of the non-CMA9 banks voluntarily adopting it. Brian Hanrahan, Chief Commercial Officer of Nuapay, a pioneer in open banking, said in an interview with International Finance, “I think it is fair to say that for the last 18 months the UK has been going through the learning curve, and developing its basic open banking infrastructure and connections.”

Currently, there are 110 third party providers approved in the country and there was a 25.3 percent increase in the number of API calls made between August and September, according to UK regtech Konsentus data, as of November 2019.

Prescriptive approach to open banking creates positive outcomes

These developments stem from a robust API standardisation as banks and financial services companies are testing prototypes and beta versions of their new operating models. “Research in fact shows that the country’s API framework is entirely capable of supporting the banking sector’s ambition in opening itself up to open banking opportunities,” Adrian Cannon, Managing Director at Omnio, a financial technology company, tells International Finance. Another reason for this is that the approach taken by the UK regulator has always been fairly prescriptive compared to other markets. The regulator provides levels of standardisation across banks which make it easier for third party providers to build services across APIs of various banks.

“The prescriptive API framework or approach taken by the regulator in the UK has also led to some really positive outcomes from a customer perspective as well,” Hanrahan says. “For example, the UK banks were required to implement an app-to-app journey, where consumers authenticate themselves in their mobile banking app. This implementation has been critical in improving customer experience.”

But it has taken a long time for the APIs to be up and running successfully in the country — particularly in the payments landscape where the API framework is facing teething troubles, however. Its functional design and the banks’ reliability are sufficient to carry on with customer propositions. Earlier this year, the Open Banking Organisation said that there are more than 135 entities approved by the Financial Conduct Authority to provide open banking-led services for consumers and SMEs.

In the coming months, the UK SMEs will find themselves in the midst of numerous financing opportunities — as open banking is disrupting the whole financial services landscape. It allows SMEs to provide their account history of cash flow and creditworthiness to external lenders to obtain a quick loan application. The crucial point, however, is that it helps those SMEs to generate a richer set of data on a particular customer to facilitate better lending decisions — and develop closer levels of integration into their existing CRM, ERP, or accounting packages. As it appears, “SMEs is one particular area where there are a lot of declines, simply because of insufficient data to make a decision, and we are expecting open banking will help change this,” Hanrahan explains.

New use cases of bank-fintech collaboration to benefit SMEs

The UK lenders like GrowthStreet and iwoca are beginning to use open banking to accelerate decision making and reduce fraud in the underwriting process. In fact, there are a number of emerging use cases of banks and fintechs collaborating to develop new innovative products and services targeting SMEs in the UK. “We’ve seen a particular focus on new products and services to benefit SMEs following the Capital Market Authority’s open banking order which came out of review in the retail banking sector,” Wadsworth says. These innovative tools and apps can analyse open banking data drawn from small business bank accounts and find valuable insights that can help them with better credit access, improve financial management and fulfill other legal obligations. “This is hugely important as it encourages SMEs to focus on being productive while an app or tool will support their budgeting, cash flow and borrowing capacity,” Wadsworth adds.

Although it is nearly impossible to measure the current impact of open banking in the UK and other European markets — this new directive is creating greater competition among business lenders, especially as the lending market suffers from a lack of competition.
For now, “open banking has increased competition and has encouraged innovators to enter the market — and these pioneers are willing to break the mould and do things differently,” Canon says. “With regard to SMEs, there is no doubt that open banking has produced efficiency gains for them, not least spurred on by the integration between non-banking and banking API-based platforms.”

But in order for third party providers to be able to operative effectively — the banks’ underlying APIs will have to be powerful. To that end, the current APIs need building out for more sophistication on both availability and stability fronts.

Recently, Nuapay published data from its study which compares banks in the UK over two categories. The first is the total time to initiate payment through open banking and the other is the number of customer interactions required to achieve that. Its data found a slight variation in how banks adopt an API-based approach. For example, one of the banks that Nuapay interviewed said that they had taken a step back after a slow start to completely re-architecture their system and the API connections to deliver better customer experience. In another example, the bank had taken an API-based approach, where all external APIs made available to third party providers were the same used for internal communications.

“So I think the open banking has not just been about automating their existing experiences, but it has forced them to rethink some of their existing approaches and think from an API first approach to their technology stack,” Hanrahan exclaims.

UK remains the most innovative open banking market

While the UK remains the most innovative open banking market — it is worth remembering that when the regulations came into effect last year — it subsequently suffered unintended consequences in terms of security and trust. In fact, McKinsey published a report titled A Brave New World for Global Banking, which estimates that banks in Europe and the UK currently have $35 billion, or 31 percent of profits at risk due to digitisation — emphasising that further digital disruption could cut profits by half  to $50 billion in 2020.

The country’s regulatory landscape is transforming systematically, with more focus on full implementation and compliance with the existing regulations over the next two years. Also, there could be a wide scope for extending new regulations in the future.

“One area which we can assume that will be flooded with regulation is the use of data to which regulators have already expressed concerns. Sensitive information must and will become carefully controlled. While the exact timing is hard to predict, what is certain is that when problems arise, the regulator will catch-up with innovators,” Canon emphasised, stating that “in the UK, we enjoy a robust regulatory framework which encourages innovation. Despite Brexit, we are seeing an impressive volume of inward investment in the open banking sector.”

That said, it does not reduce the impact of regulatory and technical challenges that banks have been persistently facing in recent months. The regulatory challenge mainly stems from the deadlines set by the regulator. For example, the deadline for introducing customer authentication was delayed by 18 months as banks in the UK were unable to meet the requirements within the stipulated duration. This in turn could lead to technical challenges for banks as they are expected to meet requirements and justify huge technology transformation costs under excessive strain. In addition, the availability of the right skill sets for the job is extremely hard to find, especially because of highly complex regulatory compliance and risk management frameworks involved.

Another challenging scenario is that an emerging generation of banks are struggling to extract value from their assets and infrastructure. In today’s circumstances, commercialising APIs is a huge necessity — and many banks are moving toward the concept of premium third party providers, or APIs which these providers are willing to pay for. Against this background, “We expect the Open Banking Implementation Entity will make an active push, using its mandate to ensure the banks are complying with their obligations to provide a service that is as good as their own internet or mobile banking channels,” Hanrahan says.

Then there is the ultimate concern of data security for banks across the world as they adopt open banking technologies. Wadsworth explains, “With a range of different technical standards across Europe, it’s crucial that financial institutions are clear on how they will safeguard their data against fraudulent activity.”

UK open banking uplifts next-gen banking capabilities in Europe

But certainly the Open Banking Implementation Entity has secured the leading role in uplifting the next-generation of European banking capabilities. This is because  “the UK was arguably the first country to develop open banking standards and continues to be a leader in the field. Many other countries are looking carefully at the UK’s experience as they develop their own models,” Wadsworth explains. The UK has made it easier for customers by providing them with modest complex banking arrangements and other European banks are following suit.

In future, it might be easier to persuade financial customers to adopt open banking, according to the PwC report, which found that 39 percent of them would share their financial data with banks and third party providers. However, this will depend on whether they receive benefits such as a comprehensive banking app, or are able to compare bespoke offers from third party providers. An app-to-app journey will be the next big focus to enhance customer experience — with a major shift anticipated toward open finance rather than just open banking in the UK and the rest of Europe — as in the case of Australia.

The post Open banking unleashes business lending race appeared first on International Finance.

“The original aim of the Competition and Markets Authority’s order was to provide consumers with more choice, create better customer engagement with banking services and stimulate innovation across the financial sector,” Jim Wadsworth, Senior Vice President of Open Banking at Mastercard, said in an email interview with International Finance. These are all important efforts, which have made worldwide open banking adoption a required norm.

Today open banking in the UK is the most advanced in the world. All of the CMA9 banks have rolled out open banking APIs, with some of the non-CMA9 banks voluntarily adopting it. Brian Hanrahan, Chief Commercial Officer of Nuapay, a pioneer in open banking, said in an interview with International Finance, “I think it is fair to say that for the last 18 months the UK has been going through the learning curve, and developing its basic open banking infrastructure and connections.”

Currently, there are 110 third party providers approved in the country and there was a 25.3 percent increase in the number of API calls made between August and September, according to UK regtech Konsentus data, as of November 2019.

Prescriptive approach to open banking creates positive outcomes

These developments stem from a robust API standardisation as banks and financial services companies are testing prototypes and beta versions of their new operating models. “Research in fact shows that the country’s API framework is entirely capable of supporting the banking sector’s ambition in opening itself up to open banking opportunities,” Adrian Cannon, Managing Director at Omnio, a financial technology company, tells International Finance.

Another reason for this is that the approach taken by the UK regulator has always been fairly prescriptive compared to other markets. The regulator provides levels of standardisation across banks which make it easier for third party providers to build services across APIs of various banks.

“The prescriptive API framework or approach taken by the regulator in the UK has also led to some really positive outcomes from a customer perspective as well,” Hanrahan says. “For example, the UK banks were required to implement an app-to-app journey, where consumers authenticate themselves in their mobile banking app. This implementation has been critical in improving customer experience.”

But it has taken a long time for the APIs to be up and running successfully in the country — particularly in the payments landscape where the API framework is facing teething troubles, however. Its functional design and the banks’ reliability are sufficient to carry on with customer propositions. Earlier this year, the Open Banking Organisation said that there are more than 135 entities approved by the Financial Conduct Authority to provide open banking-led services for consumers and SMEs.

In the coming months, the UK SMEs will find themselves in the midst of numerous financing opportunities — as open banking is disrupting the whole financial services landscape. It allows SMEs to provide their account history of cash flow and creditworthiness to external lenders to obtain a quick loan application.

The crucial point, however, is that it helps those SMEs to generate a richer set of data on a particular customer to facilitate better lending decisions — and develop closer levels of integration into their existing CRM, ERP, or accounting packages. As it appears, “SMEs is one particular area where there are a lot of declines, simply because of insufficient data to make a decision, and we are expecting open banking will help change this,” Hanrahan explains.

New use cases of bank-fintech collaboration to benefit SMEs

The UK lenders like GrowthStreet and iwoca are beginning to use open banking to accelerate decision making and reduce fraud in the underwriting process. In fact, there are a number of emerging use cases of banks and fintechs collaborating to develop new innovative products and services targeting SMEs in the UK. “We’ve seen a particular focus on new products and services to benefit SMEs following the Capital Market Authority’s open banking order which came out of review in the retail banking sector,” Wadsworth says.

These innovative tools and apps can analyse open banking data drawn from small business bank accounts and find valuable insights that can help them with better credit access, improve financial management and fulfill other legal obligations. “This is hugely important as it encourages SMEs to focus on being productive while an app or tool will support their budgeting, cash flow and borrowing capacity,” Wadsworth adds.

Although it is nearly impossible to measure the current impact of open banking in the UK and other European markets — this new directive is creating greater competition among business lenders, especially as the lending market suffers from a lack of competition.

For now, “open banking has increased competition and has encouraged innovators to enter the market — and these pioneers are willing to break the mould and do things differently,” Canon says. “With regard to SMEs, there is no doubt that open banking has produced efficiency gains for them, not least spurred on by the integration between non-banking and banking API-based platforms.”

But in order for third party providers to be able to operative effectively — the banks’ underlying APIs will have to be powerful. To that end, the current APIs need building out for more sophistication on both availability and stability fronts.

Recently, Nuapay published data from its study which compares banks in the UK over two categories. The first is the total time to initiate payment through open banking and the other is the number of customer interactions required to achieve that. Its data found a slight variation in how banks adopt an API-based approach.

For example, one of the banks that Nuapay interviewed said that they had taken a step back after a slow start to completely re-architecture their system and the API connections to deliver better customer experience. In another example, the bank had taken an API-based approach, where all external APIs made available to third party providers were the same used for internal communications.

“So I think the open banking has not just been about automating their existing experiences, but it has forced them to rethink some of their existing approaches and think from an API first approach to their technology stack,” Hanrahan exclaims.

UK remains the most innovative open banking market

While the UK remains the most innovative open banking market — it is worth remembering that when the regulations came into effect last year — it subsequently suffered unintended consequences in terms of security and trust. In fact, McKinsey published a report titled A Brave New World for Global Banking, which estimates that banks in Europe and the UK currently have $35 billion, or 31 percent of profits at risk due to digitisation — emphasising that further digital disruption could cut profits by half  to $50 billion in 2020.

The country’s regulatory landscape is transforming systematically, with more focus on full implementation and compliance with the existing regulations over the next two years. Also, there could be a wide scope for extending new regulations in the future.

“One area which we can assume that will be flooded with regulation is the use of data to which regulators have already expressed concerns. Sensitive information must and will become carefully controlled. While the exact timing is hard to predict, what is certain is that when problems arise, the regulator will catch-up with innovators,” Canon emphasised, stating that “in the UK, we enjoy a robust regulatory framework which encourages innovation. Despite Brexit, we are seeing an impressive volume of inward investment in the open banking sector.”

That said, it does not reduce the impact of regulatory and technical challenges that banks have been persistently facing in recent months. The regulatory challenge mainly stems from the deadlines set by the regulator. For example, the deadline for introducing customer authentication was delayed by 18 months as banks in the UK were unable to meet the requirements within the stipulated duration.

This in turn could lead to technical challenges for banks as they are expected to meet requirements and justify huge technology transformation costs under excessive strain. In addition, the availability of the right skill sets for the job is extremely hard to find, especially because of highly complex regulatory compliance and risk management frameworks involved.

Another challenging scenario is that an emerging generation of banks are struggling to extract value from their assets and infrastructure. In today’s circumstances, commercialising APIs is a huge necessity — and many banks are moving toward the concept of premium third party providers, or APIs which these providers are willing to pay for.

Against this background, “We expect the Open Banking Implementation Entity will make an active push, using its mandate to ensure the banks are complying with their obligations to provide a service that is as good as their own internet or mobile banking channels,” Hanrahan says.

Then there is the ultimate concern of data security for banks across the world as they adopt open banking technologies. Wadsworth explains, “With a range of different technical standards across Europe, it’s crucial that financial institutions are clear on how they will safeguard their data against fraudulent activity.”

UK open banking uplifts next-gen banking capabilities in Europe

But certainly the Open Banking Implementation Entity has secured the leading role in uplifting the next-generation of European banking capabilities. This is because  “the UK was arguably the first country to develop open banking standards and continues to be a leader in the field. Many other countries are looking carefully at the UK’s experience as they develop their own models,” Wadsworth explains. The UK has made it easier for customers by providing them with modest complex banking arrangements and other European banks are following suit.

In future, it might be easier to persuade financial customers to adopt open banking, according to the PwC report, which found that 39 percent of them would share their financial data with banks and third party providers. However, this will depend on whether they receive benefits such as a comprehensive banking app, or are able to compare bespoke offers from third party providers.

An app-to-app journey will be the next big focus to enhance customer experience — with a major shift anticipated toward open finance rather than just open banking in the UK and the rest of Europe — as in the case of Australia.

The post UK: Open banking unleashes business lending race appeared first on International Finance.

According to the founder of NOW Money, Katharine Budd, 70 percent of the GCC region’s population does not have a bank account. At the same time, she says smartphone penetration in the region is as high as 98 percent. Katharine, who was working in data analytics related to credit cards in the UAE saw a business opportunity in providing banking services to the low-income workers of the region who typically come from South Asia, Southeast Asia, and Africa.

Through its app, NOW Money provides access to competitive exchange rates for low income expat workers with broader access to the financial system through a debit card including in-store and online purchases as well as ATM withdrawals. NOW Money has entered into partnerships with established exchange houses and banks to provide a forex remittance marketplace. The Dubai fintech startup makes money by taking a cut from the other service providers on its platform. While awareness of the importance of fintechs to the financial services ecosystem is increasing in the GCC region, getting the required regulatory approvals and establishing partnerships with incumbent financial services providers, which are essential to the success of fintechs remain a challenge.

NOW Money took four years from ideation to launch in Dubai. It took tremendous tenacity and perseverance on the part of founders Katharine Budd and Ian Dillon to bring the product to market, especially as the founders claim that 10 other fintech startups in the region that tried to provide similar products simply folded up. NOW Money is also one of the rare GCC fintech startups to raise funding from US and UK venture capital funds – its backers include Accion Venture Lab and Newid Capital.

In between, NOW Money has been able to introduce innovations like its unique online user-led KYC process, In an exclusive interview with International Finance, NOW Money co-founder Katharine Budd speaks about the challenges of building a fintech startup in the GCC region, the implications of a Dubai fintech startup raising funding from specialised western VCs, and the expansion plans of NOW Money.

International Finance: Since you started working on the idea of NOW Money to the launch in 2019, it took you four years. What were the challenges you faced over these four years in launching the digital bank and how did you overcome the challenges?

Katharine Budd: The biggest challenge for anybody seeking to do something new in payments, particularly in an emerging market, is that it’s also new from a regulatory perspective. So there is not much guidance – for example on what licence we needed, and what permissions from the UAE Central Bank we needed to obtain. It also took a long time to fill the network of partners that we needed to fulfil to provide services to our customers. If you need to build a consumer finance product, you need to be working with banks, Mastercard, the regulators, and even hardware producers because you have a hardware product, a card, and a mobile app.

All these need substantial capital to finance. We have raised three rounds of funding. When we first raised funding, again because what we were doing was very new, there were doubts as to whether low-income people could even read, let alone carry a smartphone and use the NOW Money app – even though the Gulf is an extremely well-penetrated smartphone market in the Gulf – 98 percent of the population have a smartphone. It took investors who were not familiar to the Middle East market a lot of convincing to understand that people in our target market would actually be competent in using a smartphone app and be able to send money from one.

Getting a bank account has always been a challenge for startups in the UAE. Do you see any positive moves by the banking industry or the government to change this situation?

The UAE has put a lot of effort and resource into stimulating startup economy lately. A substantial proportion of jobs and income of the people in the country come from the SMEs.

Even in other nations in the region like Saudi Arabia or Qatar that have been traditionally reliant on oil, governments are looking to diversify and startups and SMEs are an obvious way to start doing that. This has driven improvements in the business practices in the region, particularly around licencing, but unfortunately that doesn’t necessarily mean banks have changed their approach.

For a bank, if they want to take in a new business as a corporate client, there is a laborious process around the know your customer (KYC) or know your business (KYB) processes. A bank has to spend a significant amount of money screening a business to make sure that it is safe to work with and to ensure that all the shareholders are people who have KYC documents. Then they need to ensure that the business is going to be profitable for the bank, so they must check that the account holders are going to keep money in the account, and that the business is going to make money quickly enough. It’s very difficult for a bank to do that for a startup that has no history whatsoever.

There might be one shareholder who is the person setting up the company or there may be a number of outside investors who are difficult to screen. It is thus very difficult for a bank to take a business as a customer without knowing whether it is going to pay back after the compliance and diligence work performed in the beginning. There is a significant cost to hosting a bank account, particularly one that may not generate revenue for two or three years. Banks are commercial operations and it is difficult for them to take a punt on a startup like a venture capital partner may do.

NOW Money has introduced a new system for customer KYC, which is automated. Could you please tell us more about this KYC system and its advantages and challenges?

We screen customers in our backend when they register on the NOW Money app. The customer uses their own smartphone to scan their  passport, national ID card, residence documents, and take their selfie video. The images are cross referenced to ensure that they are the same person and we check them against the UAE database here as well.  We have a thorough checking at the backend before we give anybody a NOW Money account and card.

Venture capitalists (VCs) in the Dubai are typically reluctant to invest in early and growth stage startups, but you have secured investments from two MENA VCs. Could you please tell us more about your interactions with the two MENA VCs and how they became interested in Now Money?

We are not in a market like the US. The Middle East is not a common market and there are individual restrictions within each country, which might make it hard for startups to expand and for VCs to have confidence that they can scale. This limits the number of attractive deals on offer; meaning Middle East VCs need to operate with a generalist approach, whereas bigger markets like the US or UK have enough opportunities that VCs can become specialist fintech or edtech investors, and develop acutely sophisticated methods for evaluating those opportunities. Middle Eastern VCs don’t have that luxury; they have to evaluate everything.

Most investors are aware the biggest potential hurdle to fintech is regulation. VCs are always looking for the only gaps in a startup that they can help to fill — scaling, marketing, or the user experience design of the product.  A generalist venture capital fund unfamiliar with fintech is unlikely to have expertise with  financial technology regulation. This makes investing in a fintech even more of a ‘punt’ than your average investment, so there is a natural degree of risk averseness.

NOW Money was able to raise from fintech specific funds in the US and the UK. We believe this helped give Middle East investors comfort. Having a live working product also makes a huge difference to this, as it demonstrates you have been able to surmount the regulation and will again.

Now Money also received funding from two western VCs. It is rare for western VCs to fund MENA startups. What are the implications of Accion and Newid’s investments in Now Money for GCC fintech startups?

When reputable US funds or UK funds invest in MENA startups it tends to build confidence and attraction in the market both locally and internationally. I think that’s exactly what we are seeing with NOW Money. That is what entrepreneurs and governments in the region want. Although we want our local investors to invest, we also want new investors from abroad to be interested in the region and demonstrate that the UAE and particularly Saudi Arabia, with the changes that are taking place, are great places for international investment.

On the one hand these are emerging markets, on the other, these are some of the most advanced markets in the world if you look at things like smartphone penetration, internet accessibility, and how the local population is consuming digital products. We are at tipping point and it is the right time for global investors to start investing in the region.

Essentially the market that NOW Money is addressing – the low-income workers – do a lot of transactions in cash. Considering this, how is a salary account that allows just two free ATM withdrawals a month workable?

NOW Money’s offering is digital – not a cash-based product. Although all our account holders receive a physical Mastercard card they can use at an ATM, we are very much a digital product and more akin to overseas digital banks such as Monzo and Starling, than a mere salary account.

Using the NOW Money app, users can make remittances overseas directly from the app, pay bills locally or internationally, get paid in real time, purchase phone credit – we are always adding more features. We monetise via commissions from our suppliers of these services. If users are just pulling out cash, they are not likely getting the benefits of NOW Money.

What are your expansion plans?

In terms of expansion, we are Gulf-focused for the time being. UAE, Saudi Arabia, Oman, Bahrain, and Kuwait are where our focus is and we have great demand from those countries.

As I mentioned earlier, it is not a common market and we have to get through the regulations and the approvals and we need partners in each market. However, I think all our markets are significantly more welcoming of fintech startups than they were a few years ago. Governments now appreciate fintech innovation as an opportunity. Earlier, nobody knew what fintech or digital banking was; now it is a hot topic.

The post Dubai fintech NOW Money driving financial inclusion for low-income workers appeared first on International Finance.

“Considering the increasing business with Chinese merchants and the closer relationships with Chinese payments giants Alipay, Tencent and Unionpay, establishing local customer support is a natural next step as we provide the highest quality of service to our partners,” explains Yoav Chernitz, China Business Development Director at SafeCharge. “Demand more is SafeCharge’s motto: we deepen our presence in China in order to deliver more to our customers, to interact more with them and to align our product development more with Chinese customers’ unique requirements”

“A strong presence in China is key to support both Chinese clients aiming to expand their business internationally and for non-Chinese companies looking for effective channels to deal with Chinese customers,” adds Willy Kwa, Regional Director APAC at SafeCharge. “All customers want the same, no matter where they are located: they want to be supported closely, especially when they are entering unknown markets”.

Thanks to its comprehensive business relationships with Alipay, Tencent and Union Pay, SafeCharge aims at developing further support for Western clients accepting payments from Chinese customers and marketing their product and services to local customers.

“China is taking a leading role in the global economy, specifically in the field of e-commerce and payments innovation” says David Avgi, CEO at SafeCharge. “Besides providing local support to new Chinese international players, we have expanded our footprint in China to learn and develop strong partnerships as we believe Chinese companies will play a very important role in the future of fintech innovation.”

The post SafeCharge opens office in Shenzhen to strengthen presence in China appeared first on International Finance.