Will Banks Become App Stores? This De Novo Wants To
For years, banks have — sometimes begrudgingly — allowed customers to share account data with other companies. Now, a startup bank across the Atlantic says it will not only tolerate such sharing but encourage it.
Mondo, one of the U.K.'s new crop of so-called challenger banks, hopes the model will change what it means to be a bank.
Banks often value their customer relationships by the number of products they can cross-sell, but Mondo dismisses that motion. Instead, it sees the information it stores about customers as the goldmine. It can empower customers to choose the best products and services across the market, rather than merely wrangling them into picking what it has to offer.
Developers will now be able to access much of Visa's technology and services as the card network looks for ways to meet the demands of consumers increasingly relying on connected devices to transact.
Several large banks, including Citi and Bank of America, have begun sharing proprietary code with fintech startups and others. The new level of openness brings benefit to both sides.
As U.S. banks wrangle with account-aggregation sites over screen scraping, the U.K. is championing a safer method for sharing data that could transform the way customers interact with financial institutions.
Open Bank Project is looking to partner with banks worldwide in a bid to have them distribute third-party apps to customers. This would give customers more choice in their banking experiences, and let banks offer services to differentiate themselves from the banking herd.
Among other reasons for seeking their own charters, the U.K.'s so-called challenger banks say they need to avoid being beholden to older institutions that can slow down the creative process.
"Banks feel they have some right to sell their own products for the rest of your life. ... They do everything they can to protect it," said Tom Blomfield, chief executive and founder of Mondo.
"We fundamentally believe there is really valuable data contained in the bank account," he added.
Mondo's business proposition would make it easier for U.K. customers to shop around for financial services and products in a country with a small number of banks and where screen scraping is less common than in the United States. It also fits squarely with a U.K. government drive to get the industry to use open APIs.
In the U.S., the landscape for sharing bank data with third parties is considerably different. Banks like Citigroup, Capital One and BBVA Compass have been making APIs available. And most recently, Visa announced it is making APIs available to third-party software developers.
Despite these examples, open bank APIs are not generally available to third-party developers although they are frequently discussed as a way for banks to embrace innovation and make their businesses more customer-focused.
"We are entering the age of the customer," Peter Wannemacher, a senior analyst at Forrester, said at a recent summit focused on APIs hosted by Apigee. "And APIs are a means to an end."
That's what should make Mondo interesting to U.S. banks: If it is successful it may signal the way to rethink an old industry for the digital age.
"We have to watch [fintech] in the U.K. and treat it as an example of where things could go," said Mark Schwanhausser, director of omnichannel financial services at Javelin Strategy & Research.
Mondo's founder hopes to have a charter later this year, but is currently testing the concept with 2,000 users via prepaid MasterCard accounts. The company has an additional 35,000 people on a waitlist.
When it receives its charter, Mondo will offer a digital checking account and will eventually use open-bank APIs, or application programming interfaces, as a way to let customers take their identity with them to use vetted apps.
"It's like the 21st-century equivalent of providing a paper copy of a bank statement," Blomfield said.
As Blomfield sees it, making data more accessible will help transform the digital checking account into a platform that outside apps can plug into.
"We would love to be an app store," he said.
He's certainly not the only bank that sees its future as a marketplace.
Germany's Fidor Bank, which most recently expanded into the U.K., has long championed an open API approach. Credit Agricole in France has embraced an app store model. And Open Bank Project, from another German outfit called Tesobe, aims to help banks transform their digital offering into app stores.
Schwanhausser does not expect the model to take off in the U.S. anytime soon. Incumbent banks in the U.S. could put the brakes on an open marketplace for numerous reasons, including security concerns and the inherent conflict of interest in a bank investing in projects that help other companies access their customers' financial data.
But unlike an incumbent bank, a challenger bank has numerous advantages in embracing the model. As Mondo focuses on the checking account, it wouldn't have to put itself in a conflicted position of making it easier for its customer to get a mortgage elsewhere.
"We will help you do it," Blomfield said. "That's the long-term vision."
But Mondo is still building itself out. Earlier this month it gave developers limited access to data via an API that Mondo calls a prototype.
Its first draft comes as the U.K. works to champion innovation and make bank data more accessible than photocopying paper statements. On Feb. 8 the industry-led Open Banking Working Group released a report, which provides a framework to build an open banking standard in the U.K. and recommends creating open APIs.
Manish Grover, author of "Dancing the Digital Tune: The 5 Principles of Competing in a Digital World," says banks and neobanks will inevitably embrace the API model but in different ways. For instance, a bank could take an open API approach to address gaps in its products and services.
Already, banks like JPMorgan Chase and Regions Financial are partnering with alternative lenders to fill a need in small business.
Whatever the execution, the app-store idea attacks one of the big problems banks are facing in the digital sphere: how to remain a hub in a world of options.
"Ten or 15 years ago, the bank was at the center of [our] lives," Grover said. "But now, banks are sort of becoming sidelined. There are so many interfaces."
Schwanhausser also argues there will come a time when consumers' desire to package individualized apps together will drive the industry to champion the model.
"You win bankers over when consumers say, 'I can provide an ROI, financial institution, if you can provide a better way of doing this,' " Schwanhausser said.
Inside Open Mondo
In early February, Mondo released version 1.0 of its API. The challenger bank plans to use the OAuth 2.0 standard so any customer can grant third parties access to their data in a similar manner to how a growing number of services are authenticated by Facebook credentials.
Mondo's progress comes in advance of Payments Services Directive 2 — a wide-ranging directive issued by the European Union that includes XSDA, a rule requiring banks to let apps access their customers' accounts when the customers wish, and a deadline of January 2018 for EU member states to implement into their national laws.
There are thorny questions that need to be answered before such a marketplace future is realized. The open bank model is a newer concept for consumers and whether they will engage with it remains to be seen. Data privacy concerns — and the vetting of third parties — will need to be addressed.
Regardless, an open banking model is one that Europe is embracing one way or the other.
"It is going to be law," Blomfield said. "In 10 years, we will wonder how we dealt with paper statements."