Is 2019 the make or break year for marketplace banking?
Richard Hayes is the CEO of Mojo Mortgages, a mortgages broker located in England. Here, Hayes shares with us his opinion on the shift in marketplace banking, and how this will impact 2019.
Innovation in the financial services sector has been forcing traditional players to adapt for the better part of the last decade. Marketplace banking is one of the latest solutions, but will 2019 be the year to make it or break it?
Innovation has been a challenge for traditional financial services firms. Their entrenched systems and processes have made it harder to adapt to the changing needs of their customers.
Meanwhile, fintech startups have been quick to capitalise on the shortcomings of traditional financial institutions with innovative products.
However, the challenge for startups is that they lack the trust, brand recognition and long-term customer loyalty of their better-established rivals.
So, it seems inevitable that each would eventually call upon the other to overcome their challenges – most notably in the form of marketplace banking.
For the uninitiated, a banking marketplace is an ‘ecosystem’ created by, for example, a bank that features several vendors.
Starling Bank’s marketplace is a great example in the UK. The digital challenger bank’s marketplace features insurers, mortgage brokers and many other kinds of financial services providers. On the Continent, Germany’s N26 and the Netherlands’ Five Degrees are doing the same.
It gives the vendors a platform to reach more people and gives Starling Bank the opportunity to create a one-stop shop for its customers without having to develop additional proprietary products.
It was only in January last year that banks in European Union member states became obliged by the EU’s Payment Services Directive 2 (PSD2). The directive forced them to open up their APIs to third parties so that, when a customer requested it, their banking data could be shared.
PSD2 will certainly help marketplace banking to realise its potential, but the marketplace concept isn’t without its critics.
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No silver bullet
Not everyone thinks that marketplace banking is a panacea for banks.
TechUK represents more than 900 British companies and their 700,000 employees. Its open banking and payments working group co-chair Dr Louise Beaumont doesn’t think these partnerships are a silver bullet.
Writing for AmericanBanker.com, Dr Beaumont said: “At best, financial institutions may gain a workable solution that squats awkwardly in the existing infrastructure and brand. At worst, after a lot of time and effort — and increasing their infrastructure costs — banks will fail to deliver any noticeable difference to customers beyond a flurry of press releases.”
Challenger bank Revolut also isn’t sold on the marketplace model. It plans to instead build additional products in-house.
Strategic and proactive
In its 2017 report: Open Banking How to Flourish in an Uncertain Future, Deloitte argued that banks pursuing the marketplace model will have to take care when selecting their partners.
It said: “Incumbent banks will need to be strategic when identifying with whom to collaborate within the ecosystem; they will need to choose partners that can add value, either by augmenting existing propositions or adding new ones. Thorough due diligence will also be required to minimise any potential risk to incumbent banks’ security and brands.
“The ideal FinTech partner for incumbents would be one whose solution can yield quick dividends, but with the scope to add longer-term value.”
Facing the inevitable
Richard Hayes is the CEO of UK startup Mojo Mortgages. He thinks banks will actually have little choice but to adopt the marketplace model if they want to stay competitive.
He said: “Banks will start to proactively establish relationships as a way of protecting against their existing current account customer base from being taken away by other businesses.”
EY’s 2018 A Vision for Platform-Based Banking report also described the inevitability of the model, but for different reasons. It said the broader digital economy has seen a clear trend toward platform-based business models – such as Amazon and eBay in retail.
But whether or not 2019 turns out to the be the defining year for marketplace banking remains to be seen.
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