With The Second Payment Services Directive (PSD2) banks can start to share their customer data assets to third parties. Traditional banks are traditional and they are definitely not flexible for quick third party integrations. However our relatively new concept “challenger banks” are the opposite. They are completely digital, they do not have branches, generally they don’t prefer any call center activities (instead they are using in-app support) and they don’t have any significant operational costs. This is why those kind of services are cheaper. UK is the leading country in the World when we start to talk about challenger banks. In 2015, people made more electronic payment then the cash in UK. That is the reason, it is not a big surprise. With PSD2 regulations, challenger banks started to use their flexibility advantage and became a very famous concept in the FinTech field.
Open Banking Environment
There are many great example case studies about new banks. However we should start with a simple categorization for understanding the distinctions between our new fully digital banks. Many people are believing that, every one of them need a banking license. However, it’s a big misunderstanding, they definitely don’t need it in every case. Sometimes open bank companies are using e-money license, and some companies are using banking license of a traditional bank like its partner bank. Let’s get through all type of open banks first.
New Banks: Those type of banks have banking license and completely independent financial institutions. Without any detail and beside fee-free life, clean design is one of the important promises of new banks. Some of the important new banks are:
· N26
· Monzo
· Starling Bank
Each new bank have some common features like:
· Showing the detailed spending summaries according the spending category (restaurant, home, etc.)
· Apple/Google Pay integrations (Benefits of PSD2)
· Freezing and defrosting the physical debit cards via mobile application
· Easier money transfer (sender can select the receiver from his/her phone directory, taking the transfer via link or using Bluetooth or Near Field Communication )
· Providing cheaper international transfer (when we compare with traditional banks)
· Clean UI and UXThose are the very essential and common features of any new bank.
However, each day we are facing with a new financial service thanks to new banks.
Feature Comparison For New Banks/Page 4
As you can see from the comparison table, Starling Bank differentiated its services from our other 2 new bank examples. However it’s not about a particular case. New banks are offering new services each day. Think about the joint accounts. In many countries, it is possible to create a joint account in a traditional banking institution. However, it’s not as simple as new banks’ process. People are very familiar with family accounts from streaming services. Now, they can create a time deposit account with a simple click with their family members or friends. This feature bring great opportunity to charity institutions. And this fact send us to business accounts. For new banks, business accounts have not in the mature phase yet.
Starling Bank Joint Account Advertisement
It’s just a start. Many institutions and NGOs will collect their donations via just a link and to directly their business account. Another common feature in open banking environment is travel related offers. Providing free ATM withdraw when you are travelling abroad or no/small exchange fees. We saw many “Travel Card” examples in US and Gulf region however none of them could provide a simple and convenient option to their customers. Since new banks have a banking license, they don’t have any restriction for providing loan to their customers. Seems like it’s a still young area for new banks but new banks are increasing their funds each year with their magnificent penetration rates. Also, as we mentioned in first section, PSD2 brought many opportunities to open banks. Third party integration is one of the most important part of it. Starling Bank is already have a marketplace where third party developers can put their solution. Definitely it’s a brand new concept for banking industry.
Beta Banks: Those type of digital banks are the sub-product of traditional banks. They don’t have any license because they are the product of regulated banking intuition. Since they are still a traditional bank, any reader can guess their core features. But we compare our beta bank example companies with new bank features. We have 3 examples:
· Sberbank Direct (Germany, SberBank)
· EnPara (Turkey, QNB Turkey)
· Simple(USA, BBVA)
SlideShare Presentation/Page 5
3 different locations and new bank features. If you go to page 5 in SlideShare presentation, you will see many red dots in the comparison table. Our first impression was beta banks are still very far from new banks and their concepts. Please note that, Simpe have much more common field with new banks when we compare their core features.As you can see, license type is differentiate open banks between each other, not their features. So there are companies like Yolt and Lunar Way, where they are using partner bank’s license for banking services. We call them as Neo Banks. Their most typical and core feature is providing account/card administration with a great interface. Finally, some institutions does not have any kind of banking license, we called them as Non-Banks. Generally, they are using e-money license for their operations. Most famous non-banks are Monese and Revolut. For travelling abroad, definetly they have great features and products. Also, Revolut is accepting cryptocurrencies and provide daily insurance! Also, Revolut is preparing for banking license.
Mert Barbaros
Co-founder of Stave Partners
Worldwide Relations
Stave Parters is helping traditional banks and private corporations for building cutting edge open banking products. For Stave’s services visit the www.stavepartners.com or contact via [email protected]
