As we herald a new era of banking, will PSD2 result in FinTechs challenging the dominance of traditional banking services?
13th January 2018 marked the beginning of the Open Banking era. The EU’s Second Payment Services Directive (PSD2) which took effect earlier this month forces banks to allow third parties, including digital start-ups and challenger banks, access to their customers’ financial data through secure application programming interfaces (APIs), and create a new way for customers to bank and manage their money online. If all goes to plan, PSD2’s main objective is to ensure maximum transparency and security, whilst encouraging competition in the financial industry. The Open Banking revolution aims to create a form of cooperation between banks and FinTechs – however, this doesn’t seem to be the case 18 days after the triggering of PSD2, with a number of banks that still haven’t published their APIs and incorporated the necessary changes. Naturally, the directive is good news for the FinTech sector. FinTech companies and digital payment service providers will gain greater access to high-street banks’ customers’ financial data – something that they’ve never had access to in the past. This will then undoubtedly inspire FinTechs to develop new innovative payment products and services and provide users with opportunities to improve their financial lives, whilst allowing them to compete on a more-or-less level playing field with the giants of the financial services industry, the traditional banks. Does this mean that traditional banks will need to up their game when competing with the burgeoning FinTech industry? Are they scared of it, and if not – should they be?
Traditionally, and up until now, banking has always been a closed industry, monopolising the majority of other financial services. The recent advancement of digitisation has shaken the industry, with FinTech start-ups offering alternative solutions to more and more clients across the globe. From a bank’s point of view, PSD2 will forever change banking as we know it, mainly because their monopoly on their customers’ account information and payment services is about to disappear. Banks will no longer be competing against banks. They will be competing against anyone that offers financial services, including FinTechs. And even though the directive’s goal is to ensure fair access to data for all, for banks, PSD2 poses substantial challenges, such as an increase in IT costs due to new security requirements and the opening of APIs. However, the main concern is that banks will start to lose access to their customers’ data. Alex Bray, Assistant VP of Consumer Banking at Genpact believes that a possible outcome of Open Banking is that banks could end up surrendering their direct customer relationships. If they don’t acknowledge the need for rapid change or move too slowly to adapt to the landscape, they risk becoming “commoditised payment back-ends as new aggregators or payment initiators swoop in”.
However, Alex Bray also argues that for banks to take advantage of PSD2, “they will need to find a balance between openness, privacy and data protection.” There is also a case to suggest that traditional banks who embrace and utilise the new directive to its potential could transform a potential threat into a huge opportunity. He also suggests that: “they [banks] will need to improve their analytics so they and their customers can make the most of the huge amounts of new data that will become available”. Only a well-thought-out strategy will help banks to survive the disruption to the long-established financial industry – and cooperating with FinTechs can be part of it. Alex Kreger, CEO of UX Design Agency suggests that “Gradually, they [banks] could turn into platform providers of banking service infrastructure… As a result, successful banks may lose in service fees, but they will gain in volume. Many FinTech start-ups will not only offer services on their platform, they will actively introduce innovative products designing new user experiences, thereby enriching the financial user’s journey and transforming the banking industry. This will attract new users and provide them with new ways of using financial instruments.”
Only time will answer all the outstanding questions related to the open-banking revolution. FinTech firms are expected to ultimately benefit from all these changes – however, whether the traditional banks will cohere to the new regulations quickly enough, whilst finding ways to adapt to them, remains to be seen.
Finance Monthly had the privilege to talk to tech veteran Carlo Gualandri about his FinTech start-up Soldo.
How does Soldo work and how easy is it to implement?
With a Soldo business account, organisations can allocate multiple intelligent pre-paid plastic and virtual Soldo Mastercards to employees and departments. Soldo provides real-time control on exactly who within an organisation can spend money, how much they can spend and where, when and how they can spend it. Companies can allocate spending budgets and impose very specific spending rules, whilst processing payments in real time. Soldo’s instant controls are remote and virtually effortless. Soldo's rich and detailed transaction data allows for uniquely detailed analysis, putting an end to the tedium and cost of traditional expense reports. Setting up an account with Soldo is quick and easy. There are no credit checks and accounts are up and running within one business day of registration. Once money is loaded onto an account, funds can be easily transferred to users for free and they can start spending immediately.
What are the three main benefits of investing in a multi-user business spending account?
Delegate: Soldo provides a mean for businesses to manage delegation of spending. It enables them to empower employees and departments to spend on behalf of the business itself - putting an end to cash advances and last-minute bank runs.
Control: With Soldo, businesses can easily stay in control of their money by setting bespoke limits, budgets and rules on user spending to retain ultimate authority.
Track: With Soldo, employees can effortlessly add transaction data, including pictures of receipts, notes and tags. All transaction data is available to view in real time and with a couple of clicks, expense reports can be generated, putting an end to traditional tedious expense reports.
As a young company, what would you say have been the major challenges so far and how have you overcome them?
Soldo is constantly evolving to meet and exceed customer needs. As such, it can prove challenging to implement internal processes in an environment which is dynamic and constantly changing. Soldo benefit from being composed of an experienced team, many of whom have worked together previously, which facilitates processes implementation and communication of ever-changing needs. Another major challenge has been the international outlook of Soldo right from the beginning, with offices in 3 different countries. However, we strongly believe that it is important to have a global outlook from the start to better understand and serve our customers. Here at Soldo, we utilise technology to communicate daily between our various offices and have 2 annual companywide conferences where we come together to discuss our progress and vision for the future.
How did the company come about in the first place, and what has pushed you to develop it this far?
Soldo was founded in 2015 by entrepreneurs and banking experts, united by the search for a simple and effective way to manage money within organisations. With over 20 years of experience in payment services and developing transactional systems, the team has harnessed the latest financial technology to provide the smartest corporate payments and expenses solution. We didn’t just stick a label on an ‘easy’ solution but invested heavily in the creation of a world-class technological, regulatory and operational platform and in finding the best team.
Soldo’s rock-solid innovation and talented team has attracted $20 million, in both Seed and Series A funding. Led by Accel Partners, our Series A round was completed in June 2017.
What are your thoughts on the digital age and the optimisation of all systems, including cashflow and accounts, in 2018?
Long-overdue regulatory evolution in the financial services industry has coincided with vastly accelerated technology amidst a market in which customers are more demanding than ever. Used to seeing innovative technology change almost every aspect of their daily lives, customers are increasingly impatient with old-fashioned, expensive or inefficient solutions. This technological evolution has played out particularly powerfully in cloud and mobile, and the stage is set for a perfect storm that will create significant market opportunities for new players and services. Within financial services, banking has always been a relatively closed market, shielded from the need to innovate by the lack of open market access. In this context, competition has been minimal and B2B services have lagged behind, even those for consumers. Soldo has seized this opportunity, bringing B2B financial services up to speed and leveraging this perfect storm to the utmost. Soldo’s innovative services make it easy for companies to manage and send payments and gain clear insight into spend. Soldo optimises the entire accounts administration process, which has been woefully under-leveraging technological innovation, and is still dominated by time-consuming manual work.
Website: www.soldo.com
Email: businesssupport@soldo.com.
By Paresh Davdra, Co-founder & CEO of RationalFX & Xendpay
The rise of FinTech has significantly altered the financial industry in the last decade. The disruptive nature of FinTech stems from the fact that its unique selling point is the use of innovative technology to enhance the lives of its customers. From mobile payments to crowdfunding platforms to new e-commerce systems, FinTech companies reflect the needs of a new generation of consumers who are looking for an easy to use service whether they are at home or on the move. It is perhaps not surprising then to note the incredible opportunity that exists for FinTech companies that allows them to pursue more than profit, and look to social responsibility as a key part of their model.
The importance of social responsibility for FinTech is intimately connected to the relationship between their audience – a new generation spanning millennials in their twenties and early thirties, and the students that will succeed them- aligned with their social conscience. This is a generation that has grown up with an awareness of issues for sustainability, social responsibility and the desire to make consumer decisions based on values. As a result, it is essential for FinTech companies to align themselves with their socially responsible audience.
This commitment to social responsibility is often reflected in the way that FinTech companies are able to do business. One sector in which this is most clear is in the payments industry. Payments have become instantaneous with the advancement of technologies; with industries such as online international payments having been able to emerge with the growth of FinTech. Whilst the business and consumer application has been a clear success with the proliferation of companies within the sector, a socially responsible aspect has also appeared through the way remittances are sent.
Remittances and the transfer of money between communities across the world has benefitted immensely from the FinTech revolution, with the number of remittances to developing countries growing by 51% to $445billion between 2007 and 2016.[1] It is clear that the availability of improved financial technology has contributed a great deal to this, with accessible mobile wallets and payment systems, such as allowing families in developing countries to receive funds from their loved ones faster than ever.
For the companies that offer these services, a sense of social responsibility is essential for the running of the business – they need to have an awareness of the needs and resources of communities in the developing countries they are serving. That is why apps will often be low cost and offer simplified functionality, designed to run on phones without access to super-fast connectivity. Furthermore, socially responsible FinTech has enabled the democratisation of remittances, allowing users to lessen the financial impact of heavy taxation in place when using money transfer services in certain countries or unreliable methods of transfer, and ensure that as much money as possible reaches its intended recipient. Some payment companies have even built their business model around the concept of responsibility and sustainability, waiving mandatory fees or commission to make sure communities benefit the most from transfers.
Xendpay is one such FinTech company, which has used its socially responsible ethos to offer families free money transfers around the pay-day period. By eliminating extraneous fees and commissions that are typically part of the service that high street agents offer, FinTech companies such as XendPay are directly impacting on the development of these societies – with more money available for the recipients of remittances, there is more money available to go back into the economy of a developing nation, rather than into private hands.
Social responsibility has become a symbol of the disruptive power of FinTech, at a time when traditional banking systems are slower to innovate. It is how an industry of imaginative FinTech companies operating within remote and developing communities have been able to evolve and provide customers with a service that works for them. Recent developments have even seen FinTech companies expand beyond simply providing mobile apps for customers, as socially responsible and ethical investing are increasingly an important aspect for modern business.
Traditional businesses looking to emulate the disruptive success of FinTech should look to the value-based ethos of the companies as a template. The FinTech industry has many examples of the future of business – ethical initiatives with a strong sense of social responsibility to the customers and communities they serve. FinTech companies have been able to capture the lucrative millennial market not only because they offer convenient and accessible services, but because of the key role that social responsibility plays in their corporate identity.
FinTech businesses realise the power that strong values have to play in bringing them closer to their audience and that they have a responsibility to align themselves with charitable and good causes, social development and issues that both the business and their customers are passionate about. This is an ethos that businesses across all sectors can learn from.
Websites:
https://www.xendpay.com/
https://www.rationalfx.com/
[1] Sending Money Home: Contributing to the SDGs, one family at a time, IFAD, 2017
