Mark Hartley is the CEO and Founding Partner of BankiFi, prior to that CIO at Clear2Pay and was advisor to Nationwide Building Society.
So can you tell us a little bit more about yourself and the path that got you to where you are today?
So, my background is, I’m a technologist by trade. I did a computer science degree and master's back in the early ‘90s. My first job out of college was with a company that provided electronic banking services. Back in the dawn days of Windows before the internet and then into the internet. The service was to enable businesses to initially do electronic payments with their bank, which kind of sounds very obvious in today's world, but back in those days, it was a very new thing. That was my first foray into providing technology to banks.
When we sold ClearPay 40 out of the world's top 50 banks were using that payment hub as a way of processing all payments inside the bank and connecting to the settlement systems.
After that, I was one of the five people in the founding team of a payments business called Clear2Pay, which was to provide payment services to banks to enable them to process any type of payments. Whether that was a bank payment, a faster payment or a card payment for a single infrastructure. We grew the company to about 1,500 people globally and we had offices in 27 countries. When we sold the business 40 out of the world's top 50 banks were using that payment hub as a way of processing all payments inside the bank and connecting to the settlement systems.
I played various roles in that organisation. The most interesting one and the most relevant in the context of what I'm doing today was when I was the Chief Innovation Officer for the last eight years of the 14 year journey, which required me to look at what was happening in the industry, what trends, regulations and technological changes would open up opportunity in the payments and surrounding services within banks.
That's when I came up with the concepts and ideas of BankFi. After I left the business at Clear2Pay, for a couple of years, I thought about these things a lot and worked with a couple of banks in an advisory capacity, for instance on the board at Nationwide Building Society and also at Nordea, before I set up the BankiFi business model in 2016, which we officially took to market early 2018.
So what do you think would be the advantages and the disadvantages for new challenger banks to not having a banking licence?
Yeah, I thought about this one for a long time and I actually can't see necessarily an advantage to having a banking licence versus not having one. Because of the way that the regulations change or have changed with the concept of payment services directive to and Open Banking. For instance, third party regulated entities who don't have to have a banking licence can get access to the data within a customer's bank account with their consent. An organisation that doesn't have a banking licence can still get all of the richness and all of the insight into the data from the account, without having the need for a banker and therefore, they have the ability to offer all the same set of services.
Without a banking license, you still have all the advantages as a non-bank, without having to have all of the costs.
I actually think that if you were a new challenger bank starting today, I'm not sure why you would get a banking licence because you can let the traditional banks or the existing banks hold the money and the account information and have all the costs associated with running that infrastructure, which is a sizeable problem. You still would have all the advantages as a non-bank, without having to have all of the costs. So I'm not really sure what the advantage of a banking licence is, to be honest in this brave new world - other than you can hold deposits.
That doesn't mean that you, as a non-bank, without one of these licences, are restricted from offering loans to these types of organisations or loans to other parties. It's much more advantageous for new entrants and non-banks to be able to come into the banking world and particularly the payments world and not having to have a banking licence seems to me a very advantageous position to be in.
Who do you think is the biggest beneficiary of Open Banking?
Well, that depends on who's got the foresight to see it as an opportunity rather than a threat. There are going to be various winners or beneficiaries of Open Banking. Customers obviously, will ultimately be the biggest beneficiaries because the services that they will get access from, the increased numbers of service providers, will ultimately be to their benefit. When I say customers, that means either consumers or businesses.
Third party processors and new entrants will need to have some uniquely differentiated propositions to be able to be one of the beneficiaries. All of these people that are just doing aggregation services or connectivity into the various different banks, are going to disappear, because there won’t be any revenue in those models. It is going to be very hard to persuade consumers to pay for services, which they can already get from their banks for free. Even if it's across multiple banks, I think that's going to be very difficult.
So I'm not sure that new entrants will be the biggest beneficiaries of Open Banking. I actually think that if the traditional banks have the foresight to take this as an opportunity rather than a threat, then my belief is that they could ultimately be the biggest beneficiaries of what is effectively a deregulation around payment services and account information services. If you look at adjacent industries, like the telco industries, where similar things have happened, the incumbents have actually been the biggest beneficiaries of deregulation. Even though they may have had their absolute market share decrease, their revenues and broader relevance increase substantially.
I believe that the traditional banks will be the biggest winners. As I said, if they have the foresight to look at this as an opportunity and start acting as a third party processor themselves, and start providing services which connect to multiple banks, not just their own, and offer services around things that are meaningful to customers that are not just necessarily bank products, but offerings.
For example, in the business community offering things like invoicing cash forecasting, collecting payments, access to affordable finance, insurance integrations, etc, etc. If they're smart and they're innovative, and they go beyond banking services, which are tied to banking products, then I think they'll be the biggest winners.
Do you think Open Banking is now well understood, or do you think more needs to be done?
Open Banking is well understood in the niche industry that we work in. Therefore, no, it's not well understood because the audience and the beneficiaries of it, as I said earlier, customers, should be one of the biggest beneficiaries. They're very unaware of it and if they’re aware of it, they're aware of it for the wrong reasons, which is that they think it is a threat, a cyber security threat or a data breach threat.
We, as an industry, need to stop talking in technical terms, we need to start talking in terms of value-add to customers.
I see a lot of banks actually going around it the wrong way, they're kind of telling their customers that they need to be wary of it rather than selling the virtues and advantages of it. So I actually think we, as an industry, need to stop talking in technical terms, we need to start talking in terms of value-add to customers and more importantly, in the language of our customers. This way, customers can understand what the benefits of Open Banking are. Your credit profile, for instance, or getting access to information to enable you to get a loan or do a mortgage application.
Let’s stop talking about Open Banking. Let’s start talking about how you can get access to the account, how to easily deliver customers and statements to the mortgage provider, how to enable them, electronically, to make quicker decisions around whether or not you're eligible for a mortgage. Enough talking in terms of Open Banking and access to accounts and consents and all these things. Instead, let’s discuss value and how you can create solutions that are explained in layman's terms. This would enable users to understand what the advantages, opportunities, solutions and services are, that are built on the back of this thing called Open Banking, without focusing on the technicalities behind it.
So what would you say is the biggest misconception around Open Banking at the moment?
That it's a security threat. I mean, the classic bank scenario is when they don't look at Open Banking as an opportunity, and they look at it as a threat. What they then do is tell their customers that they shouldn't be sharing information with other regulated third parties. So the misconception is that Open Banking poses a security threat, and it doesn't. If it's managed and done in the right way, it's no more a threat than things that are already out there today, and transactions where without knowing we share our data all the time.
I'll give you an example of that: Open Banking has been around for about 25 years, there's something called screen scraping that was built and prevalent by companies like Yodlee, back in the early 1990s. It encouraged people to share their user ID and passwords and to service providers who are not regulated, and therefore, encouraged customers to be in breach of their banking terms.
The services that companies like Yodlee and others offer have become very successful in lots of countries around the world. That model of screen scraping and sharing of credentials is far less secure than the infrastructure that we put in place for Open Banking around APIs and consensual access. Things like GDPR and regulation have come on top of that. So the biggest misconception is that it's a security threat - when it isn't and doesn't need to be at all.
So what do you think will be the biggest changes in banking in the UK in the next decade?
Well, that's an interesting question that you've asked, given where we find ourselves today in global lockdown because of the spread of COVID-19. If you'd have asked me that question three weeks ago, I'd have probably given you a very different answer. But I'll give you a contextual answer based on where we are today. If you look at the way banks have been forced to do things that they have always hidden behind not being able to do in the last two to three weeks, it's really interesting.
This concept of remote working and remote access to bank systems would never have been allowed. You know how many banks you would have had challenges with doing Zoom calls or Skype calls and how many times PCs have been locked down or they haven't got access at home? How many times have you tried to send documents which have been stopped at the firewall or because they're too big and all that kind of stuff?
It'll force banks to put things in place that they should have done, but they probably didn't because it would have cost them too much.
One of the biggest changes, positively, that will come out of this really horrible situation that we all find ourselves in, is that actually remote working and digital will become even more prevalent than it was previously. This will open up much more stuff around usage of cloud services, remote meetings, and sharing of documents. It'll force banks to put things in place that they should have done, but they probably didn't because it would have cost them too much. They hid behind the scenario that it was a security threat and again, that just is not the case. If processes and procedures are put in place properly, there is no reason why remote working and digital access and other things can’t be controlled in a very secure manner. So I think that's one of the biggest changes that will happen as a consequence of COVID-19.
That's especially true in places around the world for instance, like Italy, where perhaps digital systems are used even less. With all of this happening now, I definitely think it will be a push for people to start relying on these services more and more.
In the UK, we've seen the growth of challengers like Monzo, Revolut and Starling, which factors do you think might interrupt CMA9’s domination of the market?
It depends what you measure success on, right. If you're a traditional bank, I think you measure your success based on your financial numbers; your profits and the numbers of loans that you have out and the income you generate from the net income margin. If you compare that to how Monzo, for example, measures its success - those two success metrics could not be more different.
If you were to measure success by digital experience, Monzo would be one of the winners. The reality is that I'm not sure that you can make money from having a digital experience and a success factor on that.
Many bankers will argue that Monzo isn't really a bank because they don't have a lending book, and they don't really make any money. But from a digital experience perspective, if you were to measure success by digital experience, Monzo would be one of the winners. The reality is that I'm not sure that you can make money from having a digital experience and a success factor on that.
Over the next 10 years, it's going to be interesting to see how many of these challengers really make inroads and take market share because again, if you look at the likes of Monzo, Starling and others, there is a lot of research and evidence out there to suggest that although people have opened accounts with them, they're not the primary relationship holder with the customer. The primary relationship holder is still one of the traditional banks.
People move disposable income out of their traditional bank account into a Monzo account, for example, and use it as a secondary account. Because it's got a better digital experience but that doesn't enable you to make money that doesn't enable Monzo to make money. So I think the answer to your question is it depends on what your measurement of success is. It will depend on how Monzo turns its client base into a client base that they can monetise. I think the jury is very much out on whether or not that will actually happen.
How do you see the usage of APIs for banking evolving in the coming years?
It's going to be one of the fundamental changes that a bank makes. Having been in this industry for 25 years and having looked at how banks build products and channels in silos. You will have an internet banking product for retail customers, one for your business customers and an internet banking product for your corporate and commercial customers, that ties the customer to that channel on that product.
Instead of having a mobile bank, an internet bank, a branch channel or a telephone channel, you will end up having all of those driven by APIs.
What I think will happen with APIs from a channel perspective is that the channel will be replaced by APIs and APIs will become your channel strategy. Instead of having a mobile bank, an internet bank, a branch channel or a telephone channel, you will end up having all of those driven by APIs. The channel would effectively be a customer experience layer, that all works through the same suite of APIs which are exposed by the bank and then are consumed by those channels. Ultimately, customers use those channels which are effectively API driven.
At the back-end, all of the integrations that we've done through hideously archaic and technology legacy will also be replaced by API integrations and interfaces. APIs will become a fundamental piece of technology for banks, both in their customer facing channels, but also in terms of their integrations into the various systems of record and in the core systems of banks internally as well.
You mentioned telco earlier, do you see an equivalent of Open Banking occurring in other industries?
I think it's already happened. We talk about banking and APIs as if it's the pioneer of openness. That's not the case. If you look around just in your own life, if you're a social media user, then you use your identity, or your profile, to log into different places. You can use your Facebook ID or your Google or YouTube profile to log into different things using an API technology in something called OpenAuth, which enables tokenization, sharing of your profile and your credentials to enable you to get access to different platforms.
It's quite funny when we talk about Open Banking being this kind of real pioneering technology. It's actually not, you know, there's plenty of other places that use it already. In the financial services industry, and you mentioned insurance, for example, they're playing catch up to banking, but not in places like telco and media and other forms of services that we subscribe to.
The subscription economy will become massive and that all will revolve around APIs and sharing of your data. That's where I think banks have got a massive role to play; which is, can they become your identity provider and use your identity at your bank to open up data and finance, in various different industry verticals? Whether that's media, TV, subscription services, like Netflix, and insurance products, pensions, wealth management, all that kind of stuff. I think that's the way it's going to go. Banks have got a real big role to play in providing a trusted identity for those different and financial verticals to utilise as a trusted identity for either individuals or businesses.
Finally, can you envisage a defining factor that determines or will determine who dominates the financial services market in the next decade?
I’m not sure there's going to be one winner in all of this, but I think the winners in general will be the organisations that offer the best value and service to their customers in a digital experience, built around the relevance of their personal and professional lives. That could be anyone or any number of different types of services providers. As I said, I think that the subscription economy is going to increase massively. So you're going to weigh from product into service provision.
The ones that win will be the ones that understand the customer's needs the best; they provide value added solutions and services in a digital experience to those customers. They explain it in really simple, easy language for customers to understand, such that no barriers are created for those users to subscribe and start using those services.
What really is important, to reiterate my point earlier, is that we stop using jargon and industry-specific language. Instead, let’s start talking about value and benefit to customers and design services that easily allow that in an intuitive way to be consumed so that it becomes a digital experience that has no barriers to entry for the user. The ones that do that will be the winners and that might be banks, it might be Big Tech, it might be little tech, it will be a combination of people who understand what the customer needs and addresses it and gives it to them in the best possible way.