Fintales, our open customer session was back for a second time on 16 April for honest conversations on the relationship between banks and fintechs. In this edition, we discussed the importance of collaborating with other innovators in the ecosystem to create a specialised and differentiated offering.

The event was moderated by Miroslava Betinova, Head of Fintech at Griffin. She was joined by panellists Adam Moulson, Chief Commercial Officer at Griffin; Karan Shanmugarajah‍, ‌CEO at WealthKernel, which provides digital investing infrastructure; and Ian Gass‍, ‌Chief Product Officer at Marygold & Co., a money management and savings app.

Miroslava kicked off the conversation with a question on exploring innovation through the lens of adding value and problem solving for customers in the wealth management space.

Ian said that Marygold & Co. looks for partners that can provide a powerful product that can be tailored to their own specific use case. In this way, they can use innovations from other companies to serve their customers while remaining laser-focused on their core objectives. “Don’t innovate‍—‌let other people innovate,” he advised.

Looking at innovation from an infrastructure provider perspective, Karan argued that innovation is not about outsmarting the incumbents but deconstructing the product and going back to first principles. This will mean effectively stripping out the “fat”, or feature sets, that aren’t needed. “Let’s get rid of all the distractions and the baggage‍—‌it’s that focus that allows us to effectively build something better. We are also not afraid to tear it down and rebuild it again a few years later, ” he said.

“For example, if you try to build the holy grail of ledgers from day one, because that is what a legacy bank has, you’re going to fail. This is because the ledger that we had five years ago is not the ledger we needed three years ago, nor is it the ledger we will need next year,” he added.

Adam agreed that doing something very well needs razor-sharp focus. “Whatever you’re building also needs to be able to scale, so that your market position will allow you to continue to create value for your customers,” he explained.

“If you’re going to solve a problem that has been built up over decades, you need to be very clear on which part of that problem you can best differentiate and if that part can serve a wide enough customer base to scale,” he added.

Supporting Ian’s point about innovation, Adam continued:

“Our focus as a bank is not to directly acquire consumers and businesses. Part of our thesis is that we would rather work with organisations who are experts in solving problems in particular use cases and customer segments. The components and the platform we deliver to them can be optimised for those use cases in terms of efficiency, performance and scalability.”

He added, "It can be the hardest thing to say we’re going to do less‍—‌dramatically less‍—‌than the incumbents, but we’re doing that so that the industry can rebuild itself in a way that meets the current market demand.”

His remarks resonated with the audience, many of whom focus on designing innovative products that meet the needs of customers within different sectors.

API snags

According to the panellists and audience, collaboration across the ecosystem should be adding value in the wealth management space. However, one of the main stumbling blocks is the lack of quality bank application programming interfaces (APIs), even after seven years of Open Banking regulation in the UK.

Many think that incumbent banks are holding back on delivering good APIs to fintechs because they can monetise premium APIs. As a result, they do the bare minimum with their open banking APIs. The excuse is that fintechs won’t pay enough to make it worth their while.

This is a serious issue for fintechs. As Karan said, “APIs fundamentally reduce the operational costs for us. They make things faster and cheaper. This means we can automate payments, be responsive and more creative‍—‌it gives us a whole new world of functionality.”

There is also a lot of useful data that is available via the banks’ internal APIs that fintechs would like to have access to‍—‌and should be available under Open Banking regulation. But since incumbent banks aren’t providing many fintechs with access, this blocks further innovation in the market.

Establishing stronger relationships between banks and fintechs should help to foster a true open banking ecosystem, and in particular, simple APIs delivered consistently by banks.

Is regulation helping or hindering?

The Fintales audience shared their knowledge and experience throughout the conversation, as well as raising tough questions, ranging from risk management when dealing with multiple partners, to the high standards for customer care under the new Consumer Duty rules.

One attendee asked where the responsibility lies when the customer is shared between two entities. The panellists didn’t see this as a particular problem today, as bilateral responsibilities are well-defined. However, many are keeping an eye on the evolution of tripartite relationships and how those responsibilities will be defined in future.

Another participant explained how their consultancy firm sees Consumer Duty as an opportunity to redefine the relationship with the customer and recommended using it as a way to transform the business. “It’s all about driving good customer experience and outcomes that will deliver lifetime value for the customer,” they said.

While not everyone agrees that Consumer Duty has had a positive impact, Ian argued that it acts as a deterrent for the financial services firms that have treated their customers unfairly in the past, especially more vulnerable customers. That said, he also highlighted the scope for unintended consequences, especially for compliance departments whose job is to mitigate risk: essentially, that their focus on introducing friction may result in worse products. “There’s a healthy tension in that relationship that could get off kilter,” he added.

An attendee made the point that there is no regulation akin to Consumer Duty in many industries, because in many other industries good consumer care is one of the keys to gaining a competitive advantage by default. They said, “Financial services need to become competitive enough that these things‍—‌fair value, good customer service and good practice‍—‌become the default engagement. You shouldn’t need Consumer Duty, as treating customers fairly should be the way to do business to survive. There needs to be more companies like Marygold & Co., and WealthKernel coming into the market to make it more competitive.”

These remarks kicked off a healthy debate about the role of regulation in creating a level playing field for incumbents and new entrants, which in turn drives market innovation.

Wrapping it all up

At the end of the session, it was apparent from the conversation that innovation faced a number of issues:

• badly designed or unavailable tech (APIs)
• no opportunities for fintechs to contribute to their banks’ API building process
• banks not prioritising the needs of fintechs because they don’t see them as valuable customers
• the need for more regulation.

As Miroslava highlighted during her wrap-up, the core purpose of Fintales is to bring our customers together for deep, honest conversations on the problems the industry is facing and how we can solve those problems together. We certainly went deep and honest in this edition, and hope you’ll join us at the next one!

Missed the first edition? Check out the recap here: Powering the proptech sector with embedded finance.