apidays London 2022 - The State of Banking APIs 2022, Mark Boyd, Platformable

platformable.com State of Open Banking and Embedded Finance 2022 Mark
Boyd apidays London 2022

2022 SERIES OF EVENTS New York JULY (HYBRID) Australia SEPTEMBER
(HYBRID) Singapore APRIL (VIRTUAL) Helsinki & North MARCH (VIRTUAL) Paris DECEMBER (HYBRID) London OCTOBER (HYBRID) Hong Kong AUGUST (VIRTUAL) JUNE (VIRTUAL) India MAY (VIRTUAL) APRIL (VIRTUAL) Dubai & Middle East JUNE (VIRTUAL) Check out our API Conferences www.a pida ys .globa l Want to talk at one of our conferences? apidays.typeform.com/to/ILJeAaV8

Our Team (We’re hiring!) Mark Boyd Director Phuong Pham Senior
Analyst Spencer Perkins Junior Analyst Alexei Garban Lead Developer Rebeca Vittorazo Lead Designer Adrienne Fanning Data Governance Lead Mariana Velázquez Senior Analyst Leon Cangini Junior Developer

3 platformable.com Global move towards API-enabled digital financial services infrastructure
driven by regulations 1 There are multiple hundred -thousand £, million £, trillion £+ opportunities that are untapped 2 DX and UX are underutilized as the secret ingredients for potential fintech success 3 Key trends as we wrap up 2022

State of Open and Embedded Banking: apidays London 2022 platformable.com
4 The open and embedded banking ecosystem Ecosystem models: Visualize stakeholders and relationships Understand how value flows between stakeholders and to end users (and beyond) Highlight what metrics to collect Ensure regulations are meeting their goals Identify gaps and opportunities

5 Open banking and embedded finance definitions Various models see open banking as the first step towards greater use of data to enable financial decision-making and to personalize financial products and services at the point of interaction Open Banking A collaborative model in which banks expose their data and services (via APIs) to third party providers in order to create new value . Banking customers authorise consent when securely sharing banking account functionalities (such as payment capabilities) and data (such as account transaction history) with third parties directly in order to obtain financial and related services. Embedded Finance Embedded finance makes financial services available along the digital journey as needed. This can occur at point-of-sale or point-of-interaction with a consumer. Embedded finance draws on personal and aggregated data to create personalized, individual services and products that match the needs of each consumer.

6 Banking API Platforms are global Every continent has banking API platforms For the rest of 2022, we expect this picture to be fairly static Next growth spurt expected Q2 2023

platformable.com What has been the cause of the move to
open banking platforms? 1.Regulations create markets and enable innovation

8 75 countries have regulations in place or under discussion Market-driven countries including US and parts of Africa also have some emerging regulations but are often standards- led Russian data excluded due to war crimes

9 The UK FCA and other watchdogs of key regulated sectors progress towards a framework to formalise open finance and cross-sector data sharing by 2024 Hong Kong expects to complete Open APIs framework Phase III and IV India advancing with the account aggregation framework looking to link its instant payment system UPI with Singapore Paynow, and expects global engagement following the recent launch of Indiastack Global Pakistan expects to have a fully operational Fintech Regulatory Framework Thailand is laying out a digital economy framework CDR rules are expected to roll out to other sectors in Australia and introduced in New Zealand Indonesia and the Philippines rolling out open banking and open finance guidelines to completion Europe expected next steps to fully implement open finance by 2024, following series of public consultations by the EU Commission, the EBA, and EIOPA. PSD2 review is ongoing USexpected next steps strengthen data portability rights in the banking sector following various ongoing public consultations, and the recent establishment of the Office of Competition and Innovation Israel is progressing with legislative reforms to promote open banking Nigeria continues to lay down specific guidelines for the actual implementation of open finance in the country. Mexico progresses with the sharing of customer data Colombia to introduce voluntary Open Banking framework Brazil expects to fully implement open finance (BCB) and open insurance (SUSEP) Saudi Arabia expects to implement an Open Banking framework South Africa expects next steps following the recently introduced Protection of Personal Information Act and the ongoing public consultation on open finance How countries are now moving beyond open banking to create embedded finance markets Chile has created an open finance framework after fintech law review Canadahas shelved its sandbox regulations, with next steps unclear Key Regulatory Milestones Creating Embedded Finance Opportunities

10 3 regulations I like and 3 in the UK I’m looking forward to Belgium application of PSD2 Allowed fintech associations to hold banks accountable for enabling strong customer authentication Turkey fintech association membership Fintech must be part of an established fintech association in order to obtain accreditation, creating a communication mechanism for the regulator Markets in crypto-assets Draft legislation ensures energy consumption is measured, NFTs are recognized as investment assets, inequality risks are raised Pensions Dashboards Draft regulatory guidelines already used by bodies like Moneyhub’s ecosystem FCA Open Finance Framework Outlines how embedded finance and sectors like insurance will operate Environment Act Sets stage for ESG reporting in financial services

11 But! Regulators are not measuring whether they are achieving their intended goals No common metrics for measuring the value being generated from open banking/open finance regulations, eg: API calls sourced from each provider per month (aggregated) Average number of calls per transaction Number of consent workflows authorised by consumers with TPPs Success rate of consumers using fintech Average fintech costs and impact on financial inclusion

platformable.com *1,016.04691 kilos in UK 2.There is a ton* of
untapped opportunity

13 Bank APIs are needed to create fintech, but pace slowing in 2022 Bank API product annual growth rate is slowing globally, but especially in Europe Mandated APIs account for 61% of all product APIs globally, (82% Europe and 74% in the UK) Bank API Products by Category and Region Q3 2022 (N = 5,558) Methodology : Platformable tracks all banks globally and tallies those that have established an open API platform. We then review how many API products are made available by each bank and tally them according to category, and measure other API characteristics such as standards and specifications used, developer experience strategies employed, and business model/monetisation approaches. We review each bank at least once every three months. Annual growth of API products Q3 2022 23% 4% 25% 22% 7% 35%

14 A third of current fintech being built with APIs are payments & accounts focused No common fintech taxonomy (ask about ours!) On the surface, shows limited leveraging of open banking and open finance APIs to build new solutions to date But… Some key categories skewed by high supply of one type, so also interesting to look at top 10 by sub-category…

15 Payments backend & account-keeping hide some of the diversity that does exist… Methodology : Platformable tracks all fintech globally that are accredited or known to use bank APIs. We then review what products they are making available and tally them according to category, and we measure other characteristics such as their target customer segments and business model/monetisation approaches. We review each fintech at least once every three months. Aggregator market (important for embedded finance) Data and analytics services Lending services Wealth management (trading)

16 Industry sectors moving into embedded finance and tapping into opportunities 2 key characteristics: Making financial services available at point-of- interaction Repackaging data and reinserting it back into the value chain Insurance $3 trillion+ market opportunity Pensions “There is around £6tn in the UK pension scheme alone. A small portion of that could be diverted to high growth tech opportunities which would create jobs, help with leveling up and drive international Trade.” - Ron Kalifa Sustainability Businesses coupling sustainability with digital transformation are forecasted to be 2.5X stronger than others

platformable.com New thinking in customer -focused service delivery 3.DX and
UX are fintech’s best friends

18 SMEs and individuals are the top 2 markets for API -enabled fintech SMEs largest segment being target with fintech products, in part because there are less regulations governing businesses and more reliable subscription income streams

19 Consumers are ready to use fintech if there is more choice… Consumers believe in the value of open banking but aren’t yet seeing the products and services they want and need Source: https://morningconsult.com/2021/09/07/open-banking-awareness/

20 Which mirrors Anne Boden’s comments earlier this year* Public spat between Starling Bank’s CEO and Fintech Founders group Hard to see whether regulations are impactful without metrics… Source: https://platformable.com/the-starling-bank-spat-why-web3-won-t-save-us-weeknotes-1-8-jan-2022 Average payment volume in UK in 2021 = 2.97 billion per month https://www.ukfinance.org.uk/sites/default/files/uploads/SUMMARY- UK-Payment-Markets-2021-FINAL.pdf (*was it really this year?)

21 Fintech investment and deal sizes are down in 2022 Source: https://www.cbinsights.com/reports/CB-Insights_Fintech-Report-Q3-2022.pdf

platformable.com UX starts with understanding the customer journey i. UX
is mostly focused on bikeshedding not segmentation

23 Bikeshedding over segmentation… UX is interpreted as meaning design aspects of an app and not user segment research Fintech seeking a major client and then pivot to selling to others in that market Source: https://morningconsult.com/2021/09/07/open-banking-awareness/ Prestige/luxury market Fintech equivalent: should button be green or blue? Offering a dark mode version Target market: renters Clear use case: credit scoring

platformable.com Open Banking/Open Finance Trends Report - Q4: October 2022
Known bank/fintech API consumers Data, analytics and algorithms (Business Operations) Pinwheel $50 million raised in Series B funding round Pinwheel’s APIs cover over 1,400 payroll platforms, from top 100 employers to gig platforms, government employees, and those accessing unemployment benefits. They aim to increase lending opportunities for credit damaged and credit invisible individuals who have traditionally been locked out of such opportunities. Payroll data is invaluable for assessing the income stability of those who would be good candidates for loans, yet are unable to depend solely on their credit scores for access to affordable financial products. Improved financial outcomes for credit damaged individuals Payroll connectivity API provider Pinwheel has gained traction in the industry due to its focus on an “income layer” of data that extends beyond salaried payroll to include hourly clock-ins. The varied income options available increase accessibility to the rising number of gig-economy workers who are paid on an hourly basis. By creating an income verification and deposit switching API infrastructure, Pinwheel is enabling digital financial services to complete user journeys seamlessly and at pace. Pinwheel is a payroll connectivity API, used by some of the largest neobanks and fintechs in the United States. 24 Women in leadership Ethnic diversity in management A+ Diversity score

Connect for Platforms, Mollie’s newest offering, launched in March 2022, and is a combined SaaS and marketplace platform for SMEs. It offers integrated payment solutions as well as customer onboarding and improved operational efficiency. Connect meets PSD2 and other EU compliance regulations. By including onboarding and compliance in addition to payment integrations, Mollie is moving beyond payments to transition into business banking. B2B payments Mollie New financial services suite enables SaaS expansion in Europe Last month, Mollie partnered with payments provider Plaid to enhance customer experience across their range of products. Use of Plaid’s API will improve the onboarding process for Mollie’s customers by increasing ease and security in bank verification. These improvements will shorten the time required for customers to receive payments and set up e-commerce businesses. Implementation will begin in the UK, with other European countries to soon follow. Plaid partnership improves customer experience Known bank/fintech API consumers Known bank/fintech partners Mollie is a Netherlands-based payment integration platform allowing SMEs to accept online payments 25 Women in leadership Ethnic diversity in management A+ Diversity score

Known bank/fintech partners Known bank/fintech API consumers Credit Scoring (Lending) FinScore Credit access expanded across the Philippines Many Filipino banks are unable to process borrowers’ loans due to the use of fraudulent identities and a lack of credit history from the borrowers. FinScore’s social media lookup tool, FindSocial, combats both issues by utilizing social media data as an alternative to traditional credit scoring methods. The digital footprints borrowers leave in the form of their social media presence helps banking institutions quickly verify their existence. Using digital footprints to confirm identity and access borrowers’ data opens unbanked and underbanked populations to lending opportunities they have traditionally been prevented from accessing with traditional credit scoring methods. Digital footprints offer alternative credit scoring data SB Finance, a strategic partnership between the Philippines’ Security Bank Corporation and Thailand’s Bank of Ayudhya (Krungsri), has partnered with FinScore to expand banking opportunities across the Philippines. Using FinScore’s telco data scoring system, SB Finance can predict potential borrowers’ creditworthiness and access their ability to avail themselves to the company’s loan offerings. FinScore’s use of alternative data in predicting creditworthiness increases loan availability to borrowers across the Philippines who lack a solid financial history. FinScore was the Philippines’ fastest growing alternative credit platform in 2021 26 Women in leadership Ethnic diversity in management A Diversity score

platformable.com Be here for the long haul and seek investment
to survive ii. Startups too focused on acquiring VC investment

28 Problem 1 with VC investment and IPOs: Not suited to most of us VCs are looking for proof that their investment has market reach in the millions Fintech move quickly to generic products to demonstrate potential market size Alex McCaw, Reflect Brie Read, Snag Tights Source: https://www.stevens.earth/blog/snag “It was a two for one offer, but they don't get their second pair of tights for another six months. This made sense for everyone, the customers get great value, and they get a nice new pair of tights just before Christmas, and we get the money in now. The idea came together on Sunday, we launched it on Monday, and by Friday we had £1.25M in the bank. It was insane". Raised $USD 1M (630K from customers)

29 Problem 2 with VC investment and IPOs: Historically bad decisions This example looks at how VC ignores successful opportunities due to systemic biases We could also have used overinvestment in web3/metaverse or BNPL as proof points Sources: https://www.icaew.com/insights/viewpoi nts-on-the-news/2022/may-2022/women- mean-business-but-can-they-access- investment https://www.valuer.ai/blog/why-you- should-invest-in-women-led-startups

30 The challenge we are trying to solve is really cashflow This Finicity/ Mastercard report is also a great resource for understanding user segment needs when designing relevant fintech for small businesses Source: https://finicity.ormimas.com/api/mailings/click/PMRGSZBCHIZTANJ XGAYSYITVOJ WCEORCNB2HI4DTHIXS6Z3PFZTGS3TJ MNUXI6J OMNXW2L3SNFZWKLLPMYWW64DFNYWWE YLONNUW4ZZNONWWEIRMEJ XXEZZCHIRGGNTCHFSWKMRSFVTDENRQFU2GMMJ QFVQTGOJ UFVRWIZDFHAYWMZRSGIZWGIRMEJ 3GK4TTNFXW4IR2EI2CELBCONUWOIR2EJ RU Q3BQGNRWIUTRIJ TVQMKXPFEF66BUMM3WE5LOIJ KTGOLIHFTHQNSLIJ YDSVSZJ 5HFAQJ 5EJ 6Q====

31 We now count 95 active business cashflow fintech providers Free access to all of our data on global cashflow management fintech for apidays participants Source: https://airtable.com/shrmomzJ hTtWlzSBs/tbl2yypWGpZG7aFpY

Cashflow and balance transfer management (Financial management) Trovata New enterprise and mid-market open banking payment options Capital One partnership for automated cash management Open banking platform Trovata partners with some of the largest banks in the US 32 Trovata has recently added a payments app to their cash management platform. The app allows businesses to make payments via ACH, wire and Real-Time Payments (RTP) directly via bank’s APIs, cutting out the need for a third-party intermediary. App users can also govern payment executions in adherence with their company’s signature authority matrix, treasury policy and internal controls. Additionally, settlement (via RTP) and reconciliation is automated to improve payment processing efficiency and increase RTP adoption in the US. Capital One has partnered with Trovata to distribute the fintech’s cash management platform to its new and existing commercial and corporate clients. This aims to enable Capital One’s customers to have more visibility and improved insights into their financials and to streamline their banking processes. Projections to help customers automate cash forecasting are also included. “Trovata is helping us take a major leap forward in providing data-driven workflow automation to support our clients’ digital transformation journeys.” Phil Beck, Head of Treasury Mgmt. for Capital One Women in leadership Ethnic diversity in management A+ Diversity score Known bank/fintech API consumers Known bank/fintech partners

platformable.com Make DX your superpower iii.Not enough business model experimentation

34 With embedded finance and data-enablement, API products help you grow quicker Immediately creates opportunities to be embedded into wider value chains Links you to established ecosystems, including banks, aggregators and no-code platforms Source: file:///Users/markboyd/Downloads/SSRN-id3432591.pdf • For every 100 external developers making use of an API, the API provider’s market value increases by 1.75%. • When APIs are made available publicly, the provider firm’s market value increases by 12.9% over two years. • The financial implications are economically significant, implying a return on investment on the order of 500X.

35 DX is still an opportunity to differentiate Fintech platforms are underperforming in terms of developer experience investment over banks Source: https://morningconsult.com/2021/09/07/open-banking-awareness/

36 DX as an opportunity to test product opportunities and features Move faster towards data products and embedded finance opportunities Outsource product experimentation No one has solved digital business models yet (and banks won’t)

37 Overcoming the fintech challenge of creating real customer value UX focused on bikeshedding rather than segmentation Problem Startups focused on VC investment not service delivery for the long haul “...multiple hundred-thousand £, million £, and trillion £+ opportunities that are untapped” Problem Not enough business model experimentation APIs aren’t being leveraged as products Problem Identify user segments and use cases Solution Pursue alternative funding models Solution Recognize and invest in API value opportunity Solution

platformable.com Customer-focused, sustainable growth, ecosystem model Principles for API -
enabled fintech

platformable.com [email protected] @mgboydcom https://www.linkedin.com/company/platformable Contact us

apidays London 2022 - The State of Banking APIs...

apidays London 2022 - The State of Banking APIs 2022, Mark Boyd, Platformable

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