Open Banking: Has the ‘Uber Moment’ arrived?
Is the ‘Uber Moment’ in Financial Services upon us? And if so, what does it mean?
Predicting an ‘Uber Moment’ one way or another.
Almost exactly four years ago in November 2015, Barclays departing CEO Anthony Jenkins (now Founding CEO at fintech 10xBanking) gave a speech on the future of banking at Chatham House called ‘Approaching the Uber Moment in Financial Services’. Although unlikely, it is not impossible, that he anticipated that his analogy might in time become a literal prophecy. Then we talked about the threats from payment trends last year.
Yes, in recent weeks, the actual ‘Uber Moment’ arrived as the platform brand went public with its announcement to launch a financial services division – Uber Money. Challengers to the traditional banking sector again firmly in the headlights courtesy of the wannabe taxi bank.
Early commentators unsurprisingly are split on the platform’s likelihood of success. With its robust and app-installed user-base some expect Uber Money services to ‘snowball quicker than a taxi on the Autobahn’. Others are more sceptical, one describing it as ‘an interesting yet profitless flirtation, undermined as a sustainable business by a lack of fundamental trust’.
So with the literal ‘Uber moment’ actually upon us, digital challenger banks showing no signs of losing their current momentum, and global platforms such as Apple, Facebook and Google seeing TechFin as a next logical step, are we on the cusp of frontiers for open banking as we know it?
And if so, what are the key drivers most likely to impact on brands in the sector in future of banking?
Forces of change:
For the consumer, the forces of change at play in the financial sector over the past few years have been multifold. There is no single core driver, but multiple beams of challenge and change facing for those trying to keep ahead:
• Generational changes: we have five generational segments – Boomers, X’ers, Y’ers, Z’ers and tomorrow’s Alphas – presenting a raft of targeting and positioning challenges. Banking used to be somewhere you ‘banked with or at…’ But no longer. For those in their twenties and thirties – mobile and digitised, fluid lifestyles and less loyal – they’re looking to ‘do their banking on’ whichever apps and platforms provide the best of what they need. If that’s a bank, great. If it’s another trusted and relevant brand in my life, then increasingly that’s often fine too!
• Behavioural changes: Mobile money has become the norm and is becoming more socialised, more real-time, more fluid, more aggregated through more social-apps and peer-2-peer propositions – think PayPal’s Venmo now with 40m users and PingIt from Barclays. Changes to how we live and work are redefining boundaries between ‘fast money’ and ‘slow money’ in terms of how we manage and plan our lives. A fast-growing self-employed universe, the gig-economy and portfolio careerists have given rise to new expectations around keeping up with the momentum of our financial lives. An ageing demographic is increasingly looking for better solutions. Key Group is one such innovator looking at transforming the market for ‘later life’ financial services.
• Payment changes: In the UK a cashless, digitised, invisible, real-time payments infrastructure has expanded at pace into a multiverse of payment points. Pay for anything, anywhere with a tap – a card, a phone, your watch, the ring on your finger. It’s hard to believe that there are still advanced European economies such as Germany where cash is still used for around 75% of point of sale transactions! How long before we enable and authorise our electric cars to make automated payments at charge points or authorise our fridge to make automated payments for grocery replenishment?.
• Regulatory changes: Open banking is bringing another major step change to how we interface and manage our finances. What will be the impact of being able to interact with all of our accounts through one single platform portal? Will it matter if that platform isn’t even our own bank if it offers a superior experience and more relevant value exchange? What about applications and technologies designed to sit inside our digital lives, learning about our preferences and behaviours and either suggesting or making financial based decisions on our behalf?
• Technological changes: Money has been well and truly mobilised, but we are on the cusp of a next generation experience through the accelerated impact of 5G, AI, and big behavioural data. These are now delivering richer, more personalised experiences in real-time to us wherever we are. From understanding our future travel plans and perhaps pro-actively fixing us flight prices, exchange rates or insurance in advance, to structuring a lifestyle leasing solution for that Tesla you photographed.
• Structural currency changes: Cryptocurrencies are already here. With the scale and ambition for Libra, Facebook’s crypto come corpo-currency is causing equal amounts of excitement and consternation as an unknown risk and threat to the equilibrium of existing fiat currency driven economies. Outside of these macroeconomic impacts, Crypto at a global scale will potentially unleash a wave of new opportunities, and challenges, opening up more globally localised and remote markets like never before.
The ‘Uber Moment’ Criteria
Notwithstanding these wider forces of change at play, the ‘UberMoment’ speech identified 4 key criteria as needing to be evident. It’s worth considering each in turn.
1 .‘It must be disruptive. It needs to dramatically improve the customer experience (by at least a factor of 10 or create a whole need experience that didn’t exist before.’
The digital challengers have introduced a refreshing sense of likeability (although this shouldn’t be confused or conflated with trustability) with their modernist vibrant branding, ‘we’re with you’ tone of voice, overtly transparent communications and engagement approaches along with their slicker, simple user interfaces.
Perhaps the greatest improvement is the speed and ease of the ‘on-boarding’ process – all completed in minutes on your smartphone – with your shiny ‘metal’ or ‘hot coral’ card (if you even want a card) dropping onto your doormat the very next day. Definitely something the traditional banks still need to improve in.
However, it feels more like style over substance when it comes to many of these digital propositions. Most are focused on more singular services (relative to the broader based services of traditional banks). So the focus is largely on everyday fast-money payment transactions, with some basic spending categorisation or expenses and tax categorisation for the burgeoning and fast growing UK self-employed and micro-business owner/operators.
More importantly, and driving most of the scrutiny of the sustainability of their business models, remains the fact that most of these accounts are still largely supplementary additions being fed by the current accounts held at traditional incumbent banks and receiving the main source of income.
At this point in time, the argument would be that changes haven’t been so much about genuine disruption and innovation. It’s been more about the regulatory freedom and technological access that has enabled these fast and agile digital minnows to stoke up the waves of change across the sea of high-street banking sameness, but not to the extent that they’ve really displaced let alone sunk anybody.
However, does Uber Money represent a first serious contender in the form of ‘headless banking’ or the non-banking bank where brands looking to deepen and extend their existing relationships start to integrate financial services and offers around their existing propositions built on solid levels of rich customer data and understanding. This is what Peter Hazlehurst, Head of Uber Money is banking on – millions of Uber Drivers already using the Uber app and being paid through the app are an attractive option for broader, tailored Uber Money services such as payments, insurances, credit and so on.
2.‘Technology must power future banking and be at its core’
Technology has certainly been one of the great drivers in open banking. Perhaps mostly so in the invisible plumbing and infrastructure powering the momentum of payments, processes and platform connectivity and product and service delivery. From cash to card and now to the multiverse of digital payment possibilities, money has never been so fast, so invisible, so transparent to us.
But it’s not just about technology. More importantly and more specifically it’s about the dataverse that it produces. Facebook, Amazon and Google already likely know more about the ‘real us’ than our banks do. They are fast integrating and growing financial functionality throughout their platforms, providing them with the ability to make more predictive insights and opportunities to monetise that data through more relevant, personalised products and services, communicated and delivered more accurately, more simply and more enjoyably at the moment of need.
It is perhaps clear to see where and why Uber Money believes its ‘headless banking’ model will power its success. Certainly when they look East to Asia to the more sophisticated Asian SuperApps like Alibaba’s WeChat Pay or Grab, currently being enjoyed which are already bundled with e-commerce, chat and ride-hailing services.
This is a key area the traditional banks are lagging behind on. Unleashing the technology that enables accessibility, simplicity and convenience, speed is all very entry level. Data is where the future of open banking is at. All banks in future will need to transform their models and/or their capabilities where data is concerned. It may well become the fundamental foundations of where and why many banks in future will simply find themselves being re-positioned in the fast changing financial value chain.
Which brings us to arguably still one of the greatest levers the traditional banks still have in their favour. Trust. One such area of opportunity will be for the major banks to reassert themselves as the new identity and security guardians in future. With our data available to all, AI and Machine Learning is likely to be the next major iterative step, a world where we’re enabling certain financial decisions to be made by platforms or apps on our behalf will elevate the trust dynamic to a new level.
One such leading challenger in this area is Snoop, being led and launched by a team of ex-Virgin Money people including Dame Jayne-Anne Gadhia and former Marketing Director Paul Lloyd. Thanks to open banking, Snoop will apply sophisticated AI and human financial insight data to explore automated switching to better deals on household bills including insurance, energy, mortgage and media services. It’s not a bank as such, but a ‘money management maximiser’ promising to save users up to £1,400 per year. The journey towards more automated personal financial decision could well and truly disrupt those services still reliant on inertia driven loyalty lock-in. But how far will we allow apps such as Snoop to go on our behalf?
Protecting the integrity of our financial behaviour through advancements in biometric security as well as the digital identity fingerprint that accompanies it, KFC in China is already rolling out face-recognition ‘smile-to-pay’. Voice enabled payments are being trialled by numerous banks. Not just banks but brands will be at the mercy of voice platforms. And it can only be a matter of time until wearable tech will be enabled through heartbeat or pulse rhythms or signatures. More immediate, the increasing dependence on voice-enabled search and interaction will potentially make cadence, sound and pronunciation signatures of brand names back front and centre.
Open Banking will continue to smooth the way for interesting opportunities to change and disrupt the status quo. Arguably open banking may well be the next technological frontier for the financial services sector to contend with before the ‘Uber Moment’ is upon us. For now, it is still only the beginning of the changes to come. More platform thinking mentality through cloud-based banking services will democratise a new world of customer propositions with customer relationship management driven by data at their heart.
3.‘There must be ubiquity’
As it happens, 2015 was also the year that two of the so called leading challenger neobanks in the UK were launched – Monzo and Revolut. Both of these banks have made some impressive gains in the past 4 years, acquiring users at a rate most of the established banks can only dream of.
Monzo has at points been registering 200,000 new users a month. Whilst both have received similar levels of funding circa £330m – Monzo is setting the pace with over 3m accounts opened and accounting for over 50% of the total monthly active user base of the mainstream digital challengers.
However, there are supposed to be somewhere in the region of 67m personal current accounts in the UK alone, 80% of which live with the Big 6. So on the basis that there are likely to be at most 4m active digital accounts, at around 6% total penetration, this is far from ubiquitous, certainly in the UK.
As a simple comparison and as a precursor to the 4th and final criteria point, it’s worth acknowledging that Apple Pay now has more than 380 million users and is continuing to grow at a tremendous pace. China’s WeChat Pay has over 800m. Facebook however would be at another level altogether with over 2.4bn monthly active users globally.
4.There will likely be many players in the future of banking, but a single dominant leader
Whilst there are already some dominant players emerging amongst the current contingent of everyday neobanks – Monzo, Revolut, N26 & Starling to a lesser extent – there certainly continues to be an ever expanding multi-verse of digital propositions, vying to shake the tree and building an interconnected ecosystem around each other. Some bring stronger clarity of purpose, others are banking on targeting a specific audience or niche:
Management fintech – Yolt – isn’t a bank but wants to be your money management interface and has been one of the early pioneers of open banking, offering users single visibility, control and analytics of all your accounts. The impending wider rollout of open banking account aggregation by many banks may well limit Yolt’s progress.
NewCredit fintech – Klarna – wants to make easy credit more accessible and transparent particularly to the digital millennial shopper through its buy now and pay later through fixed installment models. A distinctive proposition of ‘smoother payments’ with a strong identity and personality has certainly stood Klarna well.
Insurance Fintech – Wrisk – is similarly taking the opaqueness and long-winded applications process to task for contents and vehicle insurance by offering users a unique personalised RiskScore based on only six questions.
Ethical Fintech – Triodos – has identified the growing importance of linking financial betterment to the betterment of the planet through ethically centred approaches to utilising your capital.
Yet right now, there is arguably no major financial services brand showing the near-term momentum for becoming the dominant leader and Bank As A Platform proposition at ubiquitous scale. Why is that?
The opportunity is clearly there but can a traditional bank do before it realises a ‘Kodak’ moment let alone an ‘Uber Moment’. What will it take and how will it impact on their existing business models, brand and customer franchises in future? How far are they willing to enable true aggregation and commercial revenue streams to other providers through their own ‘platforms’
More likely than not, in the short-term, we must expect to see some bolder and more committed moves being made in the future of banking. But by who is still open to speculation. Apple has now launched Apple Card based around a simple but attractive spend and reward mechanism. Google has just announced its move into offering a current account. In the meantime, as Uber Money and Snoop have clearly demonstrated, the main growth of future of banking may well lie outside of the traditional banking services as we currently understand them.
Definitely new frontiers with open banking but not quite the definitive Uber Moment…yet!
So in conclusion, these are certainly new frontiers and as such will demand new levels of boldness and bravery to secure long term sustained advantage and success. There clearly will be a little way to go for open banking before we can confidently assert that the ‘Uber Moment’ is well and truly upon us, but by then it may be too late for some from the traditional banking community at large. As for Uber Money, well we’ll see….