The secret behind the open banking revolution in Scotland revealed

Promoted by Scottish Development International

Our relationship with banks is changing and Scotland is emerging as a front-runner to embrace every new opportunity

Ever since the first merchants swapped goods for coins, tools and grain, banking of some sort has played a steady role in day to day life.

Scotland is in a great position, because our key area of expertise is not just financial services – we have some of the global elite in data science.

Gavin Littlejohn

Now, the digital world has shaken up our financial transactions to the point where the high street bank is rapidly becoming a distant memory. The FinTech industry is flying, employing some 61,000 people within the UK and generating an annual revenue of £20 billion, revolutionising the means in which we engage with banks and financial services as it does so.

The traditional model which saw loyal customers stick with their trusted bank of choice virtually from cradle to grave is now being prised open by a perfect storm of technology, customer demand and new regulations.

At the forefront of evolution is open banking, an initiative driven by the UK’s Competition and Markets Authority (CMA). Intended to encourage superior customer service and competitive product and service development, open banking has been dubbed the “Amazonisation of banking”, by allowing financial services a greater insight into potential customers’ finances, they can offer competitive tenders for their business.

New regulation a key catalyst for open banking transparency in Scotland and the wider UK.

Introduced on January 13, the Second Payment Services Directive (PSD2) forces banks to provide access for regulated third party operators to the bank’s customers accounts. And this could create open banking transparency in Scotland and the wider UK. As a consequence, it will be easier to move our personal and business accounts. There will also be greater visibility across banks to loan and deal comparisons, and the opportunity for third parties to offer tailored packages to customers, based on their personal requirements.

Just as we search online for a better deal for our fuel bills or hunt down the cheapest holiday flight, open banking is expected to create a boom in customers who use apps and online services to “bank hop” from financial deal to deal. This, according to the CMA, is something that just three per cent of us do at the moment.

Paying for goods will become more streamlined too, and customers can expect better deals. ‘Challenger banks’ are already seeking to attract the young and technically-savvy customer with attractive incentives and a new generation of financial service apps and websites has already emerged.

Perhaps not surprisingly, analysts at PwC have called PSD2 “game changing regulation” and suggested that banks could lose up to 24 per cent of their business to newcomers.

But while traditional banks may well suffer, open banking has the potential create new opportunities, which Scotland is uniquely placed to seize.

Why Open Banking is the perfect partner for Scottish FinTechs

Scottish FinTech leaders at the forefront of opening banking are ready to seize the opportunity.

Edinburgh FinTech entrepreneur, Gavin Littlejohn, spotted the potential eight years ago when he founded Money Dashboard. The business recently exceeded its £1m crowdfunding target by £250,000, and racked up a pre-money valuation of £12.6m.

Now convenor of the FinTech Stakeholder Group of the UK Open Banking Implementation Entity, he described open banking as “a real shot in the arm for the FinTech market, in Scotland and throughout the UK, which will continue to grow”.

He said: “Scotland is in a great position, because our key area of expertise is not just financial services – we have some of the global elite in data science.

“The combination of access to banking and massive expertise in data science combine to give Scotland a real edge.

“Plus, there’s a massive push in Scotland to increase the level of understanding in data science,” he added. “We have got many degree and masters courses in FinTech provided by the likes of Strathclyde and Stirling universities.

FinTech Scotland is helping to collaborate and shape the interaction of all these parts, so there’s a coordinated approach rather than each group doing their own thing.”

To further grow the sector, and open up investment opportunities globally, Fintech Scotland’s new Chief Executive, Stephen Ingledew, has been working with a number of key organisations, including Scottish Development International (SDI).

Open banking is supported by innovative companies in Scotland

While Money Dashboard is already ahead of the game, others are right behind – both front-facing and delivering behind the scenes technology. Glasgow-based Castlight has developed sophisticated technology capable of offering users a comprehensive insight into potential customers’ spending habits, enabling them to make more robust and informed decisions.

The ID Co started life in Edinburgh’s tech hive Codebase, but out-grew the space and has relocated to the Grassmarket. The company specialises in products which utilise live financial data to confirm identity and build trust. They are pioneers in their field.

James Varga, ID Co’s CEO and founder, said: “Edinburgh has a huge amount to offer which is still largely untapped.

“There is a lot of pedigree at Edinburgh University with a lot of machine learning going on, and Napier University has a strong focus on cyber security.

“Edinburgh could easily become the northern hub for FinTech.”

This shift in the banking landscape has already prompted high street names to adjust their approach. HSBC recently hooked up with London FinTech start-up BUD to provide financial management tools for its online service First Direct. It has already launched Beta, its own banking app that makes use of open banking access.

Meanwhile, last year, RBS opened a FinTech accelerator and startup relationship hub at its Gogarburn headquarters.

Steve Tigar, CEO of Money Dashboard, says the new open banking rules should boost customer confidence in third party operators. Once trust is established, the repercussions could be immense.

He added that former Citigroup CEO Vikram Pandit’s prediction that 30 per cent of banking jobs will be lost in the next five years as a result of new technology is no surprise.

“The flip side is the creation of new jobs in fast-growing FinTechs as well as new technology roles in retail banks in areas such as artificial intelligence.

“Scotland’s global reputation as a hub for financial services should not be underestimated,” said Tigar. “In recent years, it has played host to several successful FinTech companies bringing new innovative products to the market."

Joshua Ryan-Saha of The Data Lab, one of the eight innovation centres funded by the Scottish Funding Council through the Innovation Centres programme, agreed.

“Scotland is producing large numbers of talented data scientists who can look at financial data and work with it,” he said.

“We have our own MSc programme, and nearly all universities in Scotland have at least one analytics course and are producing talented graduates.

But, he warned, there must also be the support services to help smaller businesses who want to gain a foothold in the emerging marketplace.

“Scotland does need to have the support mechanism in place to support small and medium companies who want to take advantage, which means getting the necessary insurance and cyber security skills.

“We have to be positive, but we also need to be prepared to help SMEs take advantage of what open banking can offer.”

Scotland is a top European location for global companies and attracts more international investors than any UK region outside London. If you want to learn more about Scotland’s growing reputation as a world-leading FinTech hub, Scottish Development International (SDI) can help. With a proven track record of helping companies succeed in business in Scotland, it can offer significant financial incentives and other assistance to help establish and grow your business in Scotland.. Find out more here.