As the banking industry grapples with new open banking regulations, increasing competition, and the rapid pace of technological innovation, a handful of neobanks are adopting a new strategy to provide their customers with a full suite of the latest financial services without bearing the development costs.
Instead of developing a broad range of features and services in-house, these neobanks are creating banking marketplaces. A banking marketplace is essentially a portal through which consumers can select and use financial services products offered by multiple providers. Neobanks are creating these marketplaces by connecting to third-party services via application programming interfaces (API). This allows banks' customers to not only access the latest financial services products, but also to select products based on what fits their needs. For the bank, it can also become a source of referral and subscription revenue.
Recent changes in regulation are driving the marketplace trend. The EU’s Second Payments Services Directive (PSD2) and the UK’s Open Banking regulations both came into effect in January 2018. These regulations require banks to provide third-party access to user data at the request of their customers, generally via open APIs. Open APIs make it easier to provide customers with access to multiple vendors through a single portal. While banks are now opening their APIs to comply with the new rules, some are going a step further and integrating third-party APIs back into their own offerings. Neobanks have the most to gain from this approach since they often don't have the resources to develop all the features their customers want in-house. That's likely why these fintechs, including Germany-based N26 and the UK's Starling, are pioneering the marketplace model.
Here’s a look at how these early movers have tackled the marketplace:
- N26. The German neobank has integrated third-party services into its platform that coincide with products it’s built on its own. For example, the company offers personal loans off its own balance sheet, but partners for services like insurance and money transfers. N26 pursues API integrations only, which means it won’t partner if [...]