EXCLUSIVE: ‘The electricity of change’ – Samantha Seaton, Moneyhub and Jason O’Shaughnessy, Envestnet|Yodlee in ‘The Fintech Magazine’
Open banking was the spark, but how close it is to igniting open finance? Sam Seaton, CEO of Moneyhub, and Jason O’Shaughnessy, Head of International Sales at Envestnet|Yodlee, share their views
Better access to financial services is one of the key benefits of digital transformation. And not just access to basic banking services, but also to a wide range of other products and services that will put consumers and businesses in charge of their finances.
First came open banking, mandated in Europe by the revised Payment Services Directive (PSD2) and adopted in 2018, which was seen as a blueprint for open banking frameworks across the world. Now, we’re seeing the emergence of open finance. But it doesn’t end there, according to Sam Seaton, CEO of Moneyhub, the platform that she describes as enhancing ‘the lifetime financial wellness of people, their communities and their businesses’.
“To me, open banking is the first step, open finance is the next step, and open data is the third step,” she says. “I call it 1D, 2D, and 3D. Open banking is covered by PSD2 payments legislation, which means all payment accounts must be available to share. My current account, and my credit card are both payment accounts and can be shared with an account information service provider (AISP) or a payment initiation service provider (PISP).
“Open finance takes it a stage further, whereby you can also bring in investments such as your pensions or your ISA. It could also cover your property, or maybe your rental properties. It embraces other financial areas and assets so you can consolidate the information, thus giving you a holistic picture of your money.”
Open data integrates every aspect of an individual’s life, all of which, at some point, inevitably interact with finance; although this last is fraught with ethical bear traps and legal impediments.
Before the UK left the European Union, the EU Commission announced that it would look at legislation to create a new open finance framework by the middle of 2022. Meanwhile, the UK’s Financial Conduct Authority (FCA) is collating responses to a ‘call for input’ on the opportunities presented by open finance, which it said could make it ‘easier for consumers and businesses to compare price and product features and switch product or provider’, and thus could be ‘beneficial in the general insurance, cash savings and mortgage markets’.
Envestnet | Yodlee, the data aggregation and data analytics platform, has, in effect, been providing data to allow money management platforms like Moneyhub to do much of that for years – but it could be made so much better and easier, says Jason O’Shaughnessy, Head of International Sales at Envestnet | Yodlee.
“Open banking gives Moneyhub permitted access to consumers’ payment accounts, but then it also has connections to third parties like Yodlee, which gives it access to other accounts that a consumer might hold, so their investments, mortgages, loans and pensions are all accessible,” he explains.
“There are many potential applications that are limited by the scope of open banking. We hope open finance is adopted and made available quickly so we can all start doing things through application programming interfaces (APIs). Wealth management, budgeting, personal financial management: these are the kinds of solution that open finance can promote.”
In the meantime, Envestnet | Yodlee relies on the tried and tested technique of secure data capture, also known as screen scraping – on which the FCA has a somewhat ambiguous opinion. Secure data capture is, strictly speaking, only a fallback option for data gathering that was permitted to continue under technical regulations related to PSD2. But since banning the practice would have eroded rather than promoted consumer freedoms, it is still a primary means of data aggregation, so long as the organisation accessing the information identifies itself to the account holding organisation – for instance, for their mortgage, loan, investment account.
“So secure data capture, from reputable and responsible organisations, such as Envestnet | Yodlee, meets a need,” says O’Shaughnessy.
It’s a pragmatic but imperfect solution until such time as APIs are universal.
“At one time we were reliant on secure data access to provide a holistic picture of finances, but things are changing,” adds Seaton. “We’re a big advocate of APIs, because we love their tokenised access and reliability, and they’re great for sharing data with consumers’ consent. People are used to having a consolidated view of their finances, and are accustomed to secure data capture.”
Moneyhub operates a ‘data access triage’ system to find the best source of data when a customer’s account is connected, starting with direct open banking APIs, followed by bespoke APIs and finally, if necessary, establishing an indirect connection through an outsourced provider who can provide secure data capture.
So, we’re definitely not at ‘the Netflix moment’, yet, then – a transformational change to the way we consumer and interact with a service. According to Seaton, in the innovation timeline, financial services have ‘only just invented electricity’ – and we can’t even yet fully imagine the possibilities that open finance and, ultimately, open data could create.
“In the early 1900s, we were still using candles and were only just beginning to turn a light switch on. No one was thinking about toasters and kettles. It took time,” she says. “That’s why I get a bit frustrated when some people say open banking hasn’t had much impact. It’s like saying, when you turned electricity on for the first time, everything should have changed for the better in an instant.
“If you think about some of the legacy systems, we’re not going to transition overnight. But once it’s happened, we’ll never understand how we did things the old way. We’re just on the cusp of some amazing transformations.”
O’Shaughnessy agrees that ‘the open movement will absolutely bring us forward by 20 years’.
“But we have to endure some growing pains,” he adds. “If you look at PSD2, and specifically the open banking component, it was about giving consumers access to data and creating innovation. That innovation is coming. But there are many fintechs that can’t innovate quickly because of regulations. It takes time to feel the electricity of change.”
The Netflix moment will be achieved when the automation of money management, ‘when every penny I earn works harder, goes farther, without me doing anything’, as Seaton describes it, is reached. And Moneyhub’s suite of personal financial management (PFM) tools aspires to it every day.
Consumers are one side of the equation, but what will it mean for institutions on the other?
Moneyhub Enterprise, the open finance and payments platform for business that is supported by machine learning-powered analytics, brings Seaton into contact with organisations large and small.
“There are companies that have already had access to this level of data – the credit bureaus, the likes of Visa and Mastercard and the banks. They’ve been in this privileged position because they need this data for various reasons, but now the way they’re allowed to access it has changed because of the General Data Protection Regulation (GDPR) and open banking legislation – it’s all about consumer consent. So these businesses have had to get their heads around a completely different way of dealing with data.
“Then you have all the other companies who’ve never had access to this data, and now can with customers’ consent to do fantastic value exchange products and services.
“It’s the electricity moment again. How long, for instance, before mortgages are put up for auction? After all, do you really care who provides your mortgage? You just want the best deal. When every company in the world can access data, with the customer’s consent, we’ll see big changes like this.”
Many of Moneyhub’s partners are already nudging towards it.
“Aon is both a pension provider and a benefits platform, and it’s brilliant at highlighting the most pertinent benefits for me,” says Seaton. “You link up one of your main spending accounts, and it pulls through 12 months’ transactions, and then you’re told which are your top 10 benefits, and how much you could’ve saved if you made use of those benefits. Amazing. It’s all about servicing me in a way that I want. That means what I need, when I need it, whether it’s a financial services product or anything from the wider retail marketplace.”
But it would be limiting to think that the benefits only accrue in retail finance sector and that the only sector to profit from it are challengers in the financial services space. O’Shaughnessy has noticed a growing demand from large financial institutions themselves to aggregate corporate account data for the benefit of commercial clients.
“Corporate account data has always been difficult to access, and now they can have visibility of everything across their global operations. It makes sense to plug directly into open banking APIs,” he says.
Because regulations play a role in how quickly things change, with different rules applying in different countries, transformation will not, inter alia, be uniform
across the world. Seaton has her own thoughts on what that will mean for fintech clusters and which countries are perceived as being the most market friendly for innovators. Australia, for instance, has adopted an open banking framework, which is already much closer to open finance.
“The UK is desperate to stay at the forefront of what it has driven through the EU,” says Seaton. “Because Australia is nosing ahead, that will be a challenge. The US is lagging behind. Brazil may march ahead, because it is embracing open banking. I see the global marketplace becoming incredibly competitive.”
O’Shaughnessy sees as much room for cooperation as there is for competition, though – something he’s helping to promote through the Financial Data and Technology Association (FDATA), a not-for-profit global association for financial services companies operating in open banking and open finance.
“FDATA is bringing countries and regulators together, focussing on the best way to open up data from large institutions, and make it available to other institutions and customers,” he explains. “Worldwide, we are starting to see open banking adopted as a way forward, and people are saying ‘let’s do this in a version two, or a version three. Let’s make sure we offer all of the account types.’ We see it in the US where Envestnet | Yodlee is connecting to more and more banks via direct data feeds. It’s a slightly different model, market led by individual companies rather than mandated, but it is absolutely going in that direction. And that should be a prompt for Europe.“
Consumers don’t necessarily need to understand the mechanics behind this – they should just feel the benefits and, crucially, have faith in the system and providers that deliver them, he says.
“Consumers will mainly be none the wiser about what’s driving a change,” agrees Seaton, “but they’ll be quick to embrace it when they feel the benefits. As Henry Ford is often quoted as saying ‘if I had asked people what they wanted, they would have said faster horses’.
“I once saw a photo of 5th Avenue in New York City, dated 1900. You can spot one car among a sea of horses and carriages. Alongside it was another photo of the same street 13 years later. It’s congested with cars several lines deep, and if you look very hard, you’ll see a solitary horse, lost in the middle of the traffic. That’s the power of progress.”