If you’ve ever thought it might be a great idea to set up a bank only to find that the necessary licences aren’t particularly easy to obtain, then help is at hand. Last week digital bank Starling announced the launch of what it describes as the UK’s first ever Banking as a Platform service. Based on a secure software, the platform will, essentially, allow third parties to offer their own banking services by piggybacking on Starling’s systems.
In practice, that means that businesses using the service will be able to market a range of customised and branded banking products – such as current accounts or cards – without having to undertake long in-house development programmes and navigate a path through the UK licensing and regulatory system.
Starling says Banking as a Platform could be used by fintech (financial technology) companies, such as payment providers, who are seeking to extend their range of financial products. Equally, it could be taken up by retailers and other businesses as a way of adding value by offering banking services to customers who are already buying from them.
Pick Your Product
Of course, very few retailers have aspirations to become banks, but they may see an opportunity to offer savings accounts or cards to customers. So Starling has adopted a ‘pick-n-mix’ approach in that its platform allows partners to choose individual components from a menu of banking products.
And as Starling’s founder, Anne Boden sees it, Banking as a Platform reflects a trend that can be seen across a great many business sectors.
“Platform strategies have taken off in many other industries, with Airbnb, Uber and Apple becoming major players in the markets for accommodation, transport and music and yet owning no properties, vehicles or content themselves. As a new generation digital bank, Starling is now bringing the model to UK banking, enabling other businesses to build banking services on top of its own-label banking infrastructure,” she said.
The First Partner
The platform has launched with the first partner already on board – namely Raisin. Originally established in Germany back in 2013, Raisin has created a savings marketplace that enables consumers to locate and compare a broad range of savings products, The UK end of the operation opened in 2018. Under the partnership, Raisin will be offer banking services while itself providing savings comparison facilities to Starling’s customers.
“Our partnership with Raisin UK is a compelling example of the new Open Banking reforms in action and will allow it to build out its business in the UK,” said Boden. “By opening its APIs to Raisin UK, Starling is part of a new movement where different businesses can tailor their propositions to each customer base and put their customers at the centre of a wider financial ecosystem.”
For its part, Raisin said the deal would help drive the expansion of a company that is news to the UK market.
“Partnering with Starling will facilitate our growth, as we expand our partner bank network and offer consumers a broader array of savings products,” said UK CEO Kevin Mountford.
The Banking Revolution
The launch of Banking as Platform provides another indicator of the revolution that is taking place in the UK banking sector. According to accountancy firm KPMG, more than 50 financial services companies have applied for banking licences since the height of the global financial crisis in 2008.
From a consumer point of view, that has resulted in a great deal more choice. In addition to HSBC, Lloyds, Barclays, RBS, Santander and other established names, consumers can also change from a somewhat bewildering range of newcomers. These include banks with branches – such as Metro and Virgin Money – and an increasing number of digital players, including Starling, Monzo and Atom.
But the lines between banking and other sections within the financial services industry are being blurred by technology. For instance, thanks to the new open banking rules – which require the major banks to share data with licensed fintech companies – apps, such as Yolt and Moneyhub that help consumers to save, manage their finances or invest money can now use real-time current account information to underpin their services. This is all done through so-called Application Programming Interfaces (APIs) – software applications that allow one system to talk to another and share information. And in the future, a wide range of financial providers – from payments companies to online accountancy services providers – will be able to tap into bank accounts in the same way, using the information to create smarter services.
Starling’s Banking as a Platform is also blurring the lines – again by using an API. But in an age where there a great many challenger banks vying for the hearts and minds of consumers, do we really need more companies offering banking services?
From Starling’s own perspective, the platform provides a means to do more banking and gain scale in the marketplace. Meanwhile, it will allow partners – particularly those in the fintech sector – to build out their services. Thus. a company offering money management tools, or cross-border payments might also offer a current account, without having to apply for a full banking licence.
And that’s an important factor. Applying for full banking in the UK can be a protracted and expensive process, which involves a series of steps that may include the creation of a fully functional banking infrastructure before the application is considered. Not surprisingly, many fin-tech operators will opt for the easier to obtain e-money licence. allowing them to move cash around, rather than storing it or offering credit. In other words, they are constrained by their licence arrangements.
So in theory at least, Starling platform and any similar initiatives should result in more competition and more innovation, while also ensuring that consumers are protected by the bank licencing system.
As things stand, seven out of ten current accounts are handled by Lloyds, Barclays, HSBC and RBS so it remains to be seen if continuing innovation will result in more people switching providers. There will, however, be more choice.