Welcome to the second interview of the Open Banking: Behind the Vault series where we are joined by experts in the world of Fintech to take stock of Open Banking so far and to engage in a bit of future-gazing.
This time we speak with Matt Smith, Senior Strategic Programme Manager at Monzo. Matt joined Hi Mum! Said Dad’s Product Strategy Lead Jeevan Jayaprakash to chat about Monzo’s Open Banking moves and why the marketplace model is the future of financial services.
Here's a summary video of our conversation. Read the full article below.
TELL US ABOUT YOUR ROLE
As a Strategic Programme Manager at Monzo, Matt is responsible for delivering cross-functional big projects for the bank. He moved into this role a few months ago from the role as Chief of Staff to Monzo’s Chief Risk Officer.
Matt has been helping build up a control environment that Monzo needs as a systemically important bank and that supports the growth trajectory.
His role now spans across project management, strategy, and operations, while still looking after some risk and compliance aspects.
“It’s a really interesting area of the bank. It’s about building up the risk culture and your underlying operating model to support customer growth. Given the business growth that Monzo is experiencing at the moment, it is really important stuff and super interesting as well”.
OPEN BANKING AT MONZO
Over the past year, Monzo’s dedicated Open Banking squads have delivered Open Banking functionality like easy bank transfer, an Open Banking facilitated feature that allows users to transfer money from their accounts at other banks while staying inside the Monzo app.
Monzo is also using Open Banking for account aggregation and the ability to give users an aggregated view within the Monzo app experience.
Allowing customers to see debit accounts, current accounts and credit cards in one place within the Monzo app, was one of the flagship features of Monzo Plus and Monzo Premium, which both launched in 2020.
And it’s resonating with users, “Especially over the last few months, we're starting to see some of the work come out and a lot of our customers starting to use it, which is really exciting”.
A SLOW START TO THE REVOLUTION
While Monzo is starting to see some real traction from Open Banking efforts, Matt still believes Open Banking on the whole has had a slow start – partly because the short-term benefits were overstated at the beginning.
He points to a couple of other main reasons for this slow uptake.
The first is the whole premise around open banking being built on customer data and that building awareness of how this data is protected takes time.
Although it may seem relatively straightforward for someone who works in financial services, for the typical consumer who is rightly concerned about the security of their data, it is less so.
“The security hurdle is probably one reason why it's been slightly slower than expected, as understandably customers are really concerned about how their data is being used, and the privacy aspects of it”.
Communication is key, according to Matt. “Explain the benefits of Open Banking, and what banks and TTPs are doing to remediate issues around data security”.
Secondly, the incumbents have been slow to adopt. This is partly down to complicated tech stacks and systems architecture.
“In order to do some of the things that we need to do under the hood for Open Banking, it's more complicated for them compared to the fintechs”.
SHOULD BANKS BE THREATENED?
Startups fighting for the incumbent's lunch is a narrative that’s been touted and fiercely debated for a long time.
Do incumbent banks actually have something to be worried about when it comes to Open Banking? Is it going to be a material threat?
Matt believes we need to think differently about the ecosystem, embrace the growing movement of partnerships and not immediately resort to thinking of Open Banking as a threat or immediate competition.
What fintechs and other companies are doing is finding underserved segments or tackling particular issues that aren’t being addressed that well by big banks, which in principle, could result in customers moving away from the incumbent banks.
“If you look at banks historically, they are platform players. So, they have been in charge of their entire ecosystem and value chain, and could potentially see something like Open Banking enabling the cannibalisation of that ecosystem, with new products and services being built that their customers will then use, and ultimately migrate away from the banks”.
But instead, if banks adopt this new reality, look at new ways of doing things, and manage to embrace new partnership models with Third-Party Providers to offer their customers better servicing products – they will win in the long-term. The ones who don’t adopt will stagnate and be at a disadvantage in the future.
“Banks shouldn’t try and out-innovate the market, but try and partner with Third-Party Providers and other fintechs to offer their customer base a more superior service and product”.
Matt believes the marketplace business model could be part of the solution. Hi Mum! Said Dad published a similar view in an article last year “Open Banking: The End Game”.
In short, a marketplace connects demand (someone who wants a product or service) with supply (someone who can provide a product or service) and facilitates a transaction (for which a fee is taken - this is known as the ‘take’ or the ‘take rate’ when expressed as a percentage of a transaction).
Marketplaces are already everywhere. Uber finds you someone who is willing to take you from A to B, Deliveroo delivers restaurant meals to your doorstep that you could previously only get via walk-in, and Airbnb connects you with a stranger who is willing to let you make their home your own for a few days. Everyone’s a winner.
This consolidation is needed in a fragmented world. Customers value the convenience of having a one-stop-shop for specific needs - e.g. an Amazon for all their online shopping or a Netflix for their entertainment.
So, what does this mean for banks?
Well, the argument is similar for financial services – there is a need to aggregate customer demand, and efficiently connect customers with the most suitable financial products, whether that is your own or that provided by another bank or fintech.
In the future, banks could become the owner of the marketplace and use Open Banking to facilitate access to better products and services for their customer base.
A win-win for all sides according to Matt, “You have financial technology companies and other innovative companies selling their products and services, you have banks who have new revenue lines, and new profitability lines, and then you have more data and happier customers”.
Monzo is one of the fintechs already dabbling in marketplaces, offering customers access to savings pots from third party providers and energy switching. With a long term strategy to become the financial control center of the customer’s life, the marketplace model is a natural route.
Having both the marketplace and the high margin lending activities is the holy grail, and both startups and banks are closer to one than the other – the question is, who will be able to get their hands on both first?
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