In a UK first, Starling Bank has announced that its customers will have fully integrated access to TransferWise’s foreign currency services. This is the first such partnership for the bank, and it heralds the start of open banking in the UK.
March has been a busy month for Starling Bank, a new challenger bank in the UK. On March 15, 2017, the bank announced a new partnership with TransferWise, through which customers will have direct, in-app access to its foreign currency, and the following day it went into beta launch with its new current account.
From summer 2017, Starling Bank customers will be able to transfer funds via TransferWise in 35 different currencies, from within the bank’s own mobile app. This level of integration is facilitated by APIs, through which data is freely and instantly exchanged between Starling Bank and TransferWise.
Over time, Starling Bank will integrate other third-party services into its Marketplace Platform, meaning that it will effectively outsource product provision to its chosen partners. This will leave it free to devote its own resources to developing a market-leading current account.
The TransferWise deal is highly significant, as it represents a new era in banking. In the UK and across the EU, new regulations mean that, from January 2018, banks will have to give third parties unfettered access to customer data. The aim is to combat the dominance of the largest banks, reduce the barriers to entry faced by new entrants, and widen choice for consumers.
Although many banks will be tempted to treat so-called open banking purely as a compliance issue, others, especially new entrants, are embracing the marketplace model for its intrinsic advantages. Apart from giving them the ability to easily amass a range of best-in-class products, marketplace banking also opens up new revenue streams. Practitioners can, for example, earn money from charging for platform access rights or sharing the proceeds of product sales with their partners.
Marketplace banks will have access to extended customer data sets that incorporate third-party information, which they can harness to build a holistic view of their customers’ financial situations. Not only will this enable them to make more accurate and relevant product recommendations, thus improving cross-sales performance, they will be able to furnish their customers with better quality insight and advice, which will boost engagement and loyalty levels.
However, marketplace banking is not just for challengers. Incumbents that fear the threat posed by fintech challengers can use this model to convert them from adversaries into allies by hosting them on their own platforms.
Open banking in all its manifestations, including marketplace banking, has huge potential to transform the delivery of financial services, and Starling Bank will be just the first of many providers to grasp the possibilities on offer.
For more on marketplace banking, please read our forthcoming report Banking as a Marketplace: Opportunities and Threats.
By Daoud Fakhri, Prinicipal Retail Banking Analyst