Open Banking Adoption: Trends during the pandemic and beyond – [FULL INTERVIEW]

0:01
So hi, everyone, I’m here with Freddie Kelly, who’s their CEO credit que das who are in the credit bureau and an open banking space. So right, great, great to be with you, Freddie, thanks very much for making the time. Appreciate it.

0:13
Thank you for having me.

0:14
So I suppose First off, I’m kind of interested in some of the things you’ve been seeing. I mean, you know, we’ve we’ve chatted for a while, but some of the things you’ve been seeing from, you know, through the pandemic, in terms of the open banking product and sort of your product over, over over the last over the last really sort of six to nine months.

0:30
Yeah, of course. So for those of you who don’t know, what we do, we have essentially a credit reference agency, as well as an open banking provider. So we’re really interested in the intersection of this new data source, open banking data with credit risk, and how you use that data to kind of understand more about your borrowers and what their needs are. And in the last sort of six months, from from sort of September, we’ve seen the volume of people opting into open banking solutions across the board, double. So it went from very quickly from 1 million users to 2 million users. And that’s not individual connections, that’s unique customers opting into open banking solutions, there’s been a couple of things that are sort of been driving that, obviously, you know, you look at kind of FinTech and digital banking and digital transformation as a whole, like people need to transact online now that there’s just no like in branch, you know, paper based alternatives. So open making as a facilitator of digital connections and data sharing between customers and the businesses that they’re borrowing money from has been one source of growth, but also the kind of change in economic environments of individuals. So things like furloughing payment, holidays, we’ve obviously got new loans, emergency loans from the government’s for small businesses, all of those have meant that sort of patterns in customer accounts, and resulting credit risk profiles have really changed almost overnight. And so open banking has been a crucial tool in helping companies understand what what the circumstances of their individual customers look like, and helping them deal with those.

2:13
And when the pandemic hit, I mean, how much of a spike Did it cause in terms of in terms of like digital adoption, and open banking adoption? Because, I mean, it was on a growth curve before. I mean, the pandemic here, and now everything feels like it’s kind of gone digital. Was it? Was it really dramatic?

2:28
I think, yes, I mean, the thing that I sort of really noticed was, was kind of attitude change as well, like, you know, we talked about, we, you know, you and I were just talking about people working remotely, and how quickly that the transformation took place, you know, I know that some of the, these big enterprises have had sort of like, two, three year, you know, investigations and projects going on as to like, what the future of work looks like, and whether we should work from home. And, you know, the, the idea that we’d all just suddenly drop everything and go home was, was, you know, unthought of, until it had to happen, and then it was, it was able to happen really quickly, because it had to happen. And so, similarly, with, with our customers, you know, open banking for the last couple of years, you know, it came into existence in early 2018. And the sort of there was initial kind of slow adoption curve, and now that that sort of really ramped up and, you know, one of the things that we seen in the last six months is it sort of went from like, a nice to have to need to have, and so you know, that there’s nothing you can argue with, you know, the attitudes of our customers really changed. And they said, You know, I need to do this now. And, you know, this is this is for a wider audience, it’s going to be, you know, crucial to the way I underwrite risk. And so that’s the real acceleration we’ve seen. And obviously, that, in turn, has bred more more use in more customers getting comfortable with the standard, which has meant more sharing, and so on, and so forth.

3:40
And in terms of like, where open banking sort of sits, and those seem like there’s a lot of traction in the front end in terms of acquisition and doing affordability and those kind of things. And those sort of quite a bit of adoption in that and the back end collections piece was was a little bit of a harder sort of hardest get people to adopt it. Has that piece particularly changed because there’s more financial difficulties around? Or is it? Is it less on the acquisition side than it was? Because there it’s more around financial difficulties? And almost like on the, you know, on that side of the business?

4:10
Yeah, I mean, I’ve definitely seen that that use case growing, and there’s some great companies doing do work in that space. We’re partnered with a business called paling, and I’m sure you know, that that provides services to, among others, the one the second, the largest sort of device companies in the UK Payplan. And, you know, that, I guess, with open mic, it’s always been about value exchange. And so, you know, whereas traditional credit data kind of, can be shared more or less under the surface from a customer perspective, you really need consent from an individual to get that data and in in lending, there’s a clear value exchange that says, you know, share this information you’ll get a faster application or a lower rate of interest or your your acceptance, likelihood will be increased. And so for, for cases in the use cases in the kind of debt advice and forbearance space, it’s been what’s the Equivalent Exchange? Because they know that I’m already a customer at that point. And so that question has always been the ones kind of made that, that area kind of, I guess, more nascent. And we’ve seen, you know, some really simple prohibitions worked really well, you know, the first thing is that there, when you think about the analogues, you know, to do an income and expenditure analysis over the phone, it’s quite painful, like, it’s quite slow. You know, it’s, it’s fraught with an accuracy if people give the wrong information, not very many people are very good at coming up with, you know, how much did you spend on X Y, Zed category this month. And also, you know, you’re typically speaking to someone in a call centre that you don’t know, that maybe you don’t want to share that information with and so giving people a way to do that, or in their own control, you know, away from sort of someone looking at it, and actually give them a sense of them being in control, which is very often what people that are struggling with that, you know, really lack and it’s a really helpful feeling to kind of be able to give them now that’s, that’s really something open banking can provide, given the right solutions. And allowing people to kind of self remedy also presents a massive cost saving to the providers that normally would spend a lot of money doing this stuff manually. So those have been some big drivers for us. And we’ve also just seen, again, willingness to share, to grow. And that’s, you know, that’s a function of the solution is the user experience. And if you can say to someone, I remember sort of, early on in that kind of initial stage of development, open banking, there were kind of people doing surveys saying, you know, Mr. Joe Bloggs on the street, would you share your banking data with a third party? And obviously, they said, No, because that sounds terrifying. But if you say, you know, oh, here’s a secure bank mandated FCA regulated way to share your bank statements that doesn’t require you printing off a piece of paper or getting a phone call and having to go through 45 minutes of income expenditure analysis, then people say, yeah, absolutely, that that makes sense for me.

6:55
And I suppose it’s just, you know, with with digital adoption, people with within the pandemic, we just got so much more used to having everything on our phones or everything done automatically. And it’s almost like you can’t go and like send Paper Paper Paper copies into the into the bank or send them send them send them through in the same way as you can before. And I think that’s all it is that that’s sort of been changing habits to a certain extent, it kind of feels at least anyway, is it easier to get investment, I mean, so one of the things that is always been a challenge, particularly the collections world has been around getting investment for digitalization and digital projects, a lot has been on people’s roadmaps for a long time, through the pandemic, it felt like that kind of change were almost like, it’s become much more of a necessity. And so that’s sort of gone up a little bit new finding that almost like from going to your clients in terms of getting the okay to put some of these new processes in place, there’s more investment that’s kind of available. Yeah, I

7:43
think so. I mean, the, like, I guess it comes back to that, like nice to have versus need to have question like, you know, previously that there was a huge alert to digitization. But it was never top of the lists, in many cases, because, you know, it meant investing in new new digitalization platforms, you know, transformation projects, stuff that would normally take a long time, and I guess we sort of proven that, that doesn’t have to take a long time, you can kind of retrofit and adapt quite quickly with with, you know, especially with sort of SAS players like ourselves and others that, you know, don’t necessarily require, like a big integration burden. So, actually, the investment isn’t that big to begin with, which is great. But also, it necessitates that, like, you’re saying, you’re not able to reach customers in the same way. And, you know, just, you know, the idea of having to kind of do these things, you know, the manual way, it’s almost impossible. And you can kind of expand your reach your, your sort of bandwidth with it with a digital process, because it’s not, it’s almost elastically scalable. And also, you can cut down your cost, because you’re, even if you even if you still have to have a phone call, you know, why not have a phone call where, you know, you’re, you’re, the person who’s doing the triage or the advice is sat at a screen with all the information, you know, neatly laid out in front of them, and they can analyse compensation. Exactly. And they don’t have to ask all the hard questions, they can just say, Okay, I’ve got your information. Let’s talk about it. So yeah, I think that the, you know, finding the investment inside the businesses to do this stuff is, you know, it’s always been on the roadmap for these companies. It’s just been pushed up to the top of the list, which is the key, the key kind of catalysts that that the lockdown has brought.

9:27
I always loved this idea of CO browsing. So you saw it, so you sort of like us can see the information the customer kind of sees, then you can have that conversation about the same information. And it sort of changes the dynamics on like, if you’re actually having a call at least as much as automation kind of opportunities.

9:41
Yeah, no, I totally agree. I think it’s it’s a much nicer conversation to have and there’s no uncomfortable conversations for either party.

9:50
Yeah. And one of the things that’s on the radar is is Brexit, and I did see, I did see that the FCA the FCA came out some guidance around it impacts on who’s around PSD two, which would impact some of the stuff around some of the some of the standards around for open banking. Do you have a view on that? Or? I mean, how much of an impact you think that’s going to be? Or do you think the FCA will probably have it covered?

10:13
Yeah, so that there are a couple, I mean, there’s, there’s a plan in place, there are a couple of technical intricacies to the way that open banking is implemented. And it’s particularly pertaining to, to the passporting of, of regulatory permission. So as a as a sort of PSD to company in each or each geography in Europe, they’re basically the regulation is delegated to the competent authority, which in the UK is the FCA. And that’s who provides us with an AI SP licence. There are equivalents in all the other EU states and pre Brexit, obviously, you could you could kind of passport that permission and operate in those countries. And so companies that have done that, now needs to essentially have an entity outside of the UK that’s still in the EU to retain that that ability to kind of update their, their permissions. And there’s also some more technical intricate intricacies around ei DS certificates, which is sort of the the way third party certify their credibility against banks and and how those are managed. So there’s been some, definitely some additional work that’s been created as a result of Brexit or the the impending Brexit departure. So it’s not without challenges, but I think for most companies that are operating in this space, we’re kind of very aware that this would be an outcome, and I’ve prepared for it, and they’ve got, you know, plans in place and have sort of built those, those changes into their their roadmap. So you know, it’s a it’s a challenge, but it’s not insurmountable.

11:51
Yeah. So we’ll see what happens. But it sounds like it’s, it’s covered, at least anyway. So.

11:55
Yeah, exactly.

11:56
And how you finding, we’ve obviously been working at home, and we were just chatting about, you know, our various locations where we were before we started here. I mean, how have you found that in terms of having a distributed? team working from home? There’s kind of things I mean, is that been an easy transition for that for you and the team? Or are you? Or is it, you know, you’re finding challenges?

12:15
Yeah, I think in the grand scheme of things, you were very lucky as a business that when, you know, we were kind of we operate sort of like a trust this architect architecture, so there’s no like, you know, server in the office that we need to have access to, or, or network or anything like that. So everyone’s got a laptop, they have, you know, security credentials that they use to get into the system, and they can work from anywhere. And that was the kind of way we operated before. And indeed, we even had weekly working from home days where people would go and sort of almost practice being at home, because, you know, everyone’s got their own lives, you know, families, children, whatever it needs it to be able to kind of plan around that. So it definitely initial transition, there was there was no issue there. I think people like easily conflate like sort of working from home temporarily and sort of working from home, in in COVID environments. And actually, the thing that that’s been really good about, the way we work at the moment is that everyone’s at home. So you don’t have this like, oh, you know, they’ve said to me in the office, this happened, and you weren’t involved in this conversation, because they’ve got this sort of pockets of information. So that’s something that I think, at the moment, we’re lucky that we’re sort of not having a problem with, but people will kind of might start seeing issues that’s sort of a partial working, working from home environment in the next couple of months.

13:30
That could be challenged, we go back in the office, isn’t it? Like you have almost like an in office conversation? Yeah, the sort of water cooler chats,

13:36
right, yeah. And so I think that that can easily be overestimated. The other thing is just like, personal resilience and morale, like, you know, we almost like we’re really productive at the beginning of lockdown, because we suddenly had all this extra time that we weren’t commuting. But you also, you know, we were just talking about, you know, that the dreaded like back to back zoom meetings and things like that, and how quickly that can drain your, your energy. And I found it as a leader of a company, it’s challenging to kind of keep everyone sort of feeling that, you know, sort of morale and kind of joined feeling of progress against our benchmarks if you’d like, you know, how are we actually progressing because, you know, not getting everyone together, you know, we have weekly, all hands, cause we, we had like everyone else, we had a quiz for a while we’ve got like events and sort of Christmas party stuff and all that kind of thing going on, but just, you know, we need you know, non work time together as a group to bond and builds relationships, especially as we’ve grown as a team and hired more people this year to sort of gel interpersonally and so that’s something I’m conscious of, of like, how do we make sure that still happens? And we’ve been doing things like, you know, weekly, like randomised one on one chats where people have 30 minutes, just chat to each other and it’s nothing to do with work and you know, that there are things you can do but it’s it’s definitely a challenge. I think it’s it’s If we just say, oh, yeah, we’re fine. We’ve all got laptops, we can work remotely. And you know, certainly compared to a big bank, where they’ve got, you know, physical machines and, you know, skyscrapers that are not at all COVID Security, you know, that we’re lucky that we don’t have any of that. But we’ve still got all these kind of sort of fuzzy issues that kind of only sort of set in, you know, a couple of months in there that we, you know, we need to think about and make sure that we stay abreast of,

15:26
and I think one of the challenges I’ve been hearing is rigour, and I suppose the relationship piece. And so we’re so used to sort of doing face to face kind of relationships, face to face contact to build relationships, and sort of video calls, they work, but they do take some of that stuff away. And we’ve sort of gone into this sort of using video causes replacement for it. But, you know, long video calls can get very tiring, and there’s been a little bit of a move towards, you know, do we have more short video calls, because those, those those things are sort of, you know, help in terms of building relationships? I suppose the question really is, do you think there’s another way we need to start interacting with each other? If we are remote, then then just trying to replicate what we did in in real life? Do you think?

16:06
Yeah, so I’m a real believer in, in the written words. So I think that so we easily like confuse, you know, Slack messages or teams or whatever, with with writing. Like, you know, pinging a message to someone isn’t the same as like sitting down, writing sentences, paragraphs, pages, and I’m thinking about your thoughts. And it’s really easy to have meetings, that kind of pointless, because you don’t do that first, and you just sort of chat about stuff. And then you have a meeting to set up another meeting. And there’s a, there’s a really good book called called Rework, which is by the creators of Basecamp, and Ruby on Rails that talks about this process, and this sort of came out, you know, must be almost 10 years ago now. And it you know, they’re quite like, strong advocates of just not having meetings unless you absolutely have to. And I know that, you know, this is something that Jeff Bezos is famed for, as well as like, you know, you need to have a, an agenda and a document a proposal before you have a meeting to allow that to happen. And, you know, we’re not quite at the point where we’re that strict, but actually, you know, one of the things I’ve noticed, and that’s been driven by our product team, to be honest, that they’ve kind of, sort of spread this, this way of working to the rest of the company. But, you know, if you’ve got to, if you want to have a meeting, you know, writing a proposal or, you know, a job to be done, or, you know, a story user story, or something that kind of sets out what the what the meeting is about, and gives people context and then actually running the meeting with an agenda. And now this is kind of obvious, but that that sort of way of doing things is, you know, even if we were in the same room, it’s incredibly effective. And so doing more of that, you know, putting your thoughts down and trying to disrupt, you know, have more sort of rich structure structured your day. Yeah, exactly. And less less interruptions, you know, having this kind of immediacy of instant messenger can be really negative for productivity, because if you’re just like, letting your inbox and your Slack messages ruin your day, then you end up just being very responsive and reactive, and not actually doing the thinking that helps other people get on board with what you’re you’re trying to build,

18:14
and the slope, so many ways of being able to contact each other now with I mean, you mentioned slack and email and those kind of things. I mean, they just they just sort of you get the distractions, they just come up all the time with notifications, if you’re not careful,

18:25
I suppose. Yeah, absolutely.

18:27
So I know, You’ve been looking at some of your data, and you put out a paper the other day, a little bit around, you know, that younger people have been impacted more by COVID, if you had any insights that really struck

18:39
you. Yeah, absolutely. So we do this sort of quarterly report called the borrower index that you can download for our website. And we essentially asked people, how their perception of credit and borrowing money is, is developing and changing over time. And we saw some really interesting things in our November report, particularly around sort of younger generation borrowers. So the, the kind of the 18 to 24 gap, seeing what kind of like a bigger impact and how they reported that the sort of impact on their finance, you know, and I guess, potentially, sort of a greater concern, the fact that, you know, they’re expecting to or have needed to borrow so 43% of the people asset needed to start borrowing since since the beginning of the pandemic, and about 20% more sort of expected to just to be able to cope. And I guess this, this comes down to this, like point around financial resilience that we see sort of across the board, you know, people people needing to sort of borrow money to kind of transact day to day versus, you know, for a specific event or purchase. And so that’s been a an interesting and I guess, concerning development, and it’s kind of allowed us to sort of think more about you know, what are the right types of lending models? support those customers, because, you know, there’s all sorts of credit options available there and get bounced, compare and choose the right one, when when they actually need credit and making sure that is the right solution is really important. We also looked at there’s kind of renting population, which was equally, you know, affected in the sense that they, they sort of have less runway in terms of resilience and savings. And they need to kind of needs it to kind of support that with with supplementary income or credit. And again, this kind of this kind of increased appetite for credit, which, which is a challenge because when you think about how traditional credit scores are calculated, your sort of appetite for risk or appetite for credit should take can be kind of perceived as a, as a risk indicator. And, you know, one of the things we’ve been sort of thinking from a, from a credit risk perspective is, you know, if people you know, that were previously prime or or kind of good credit profiles, in the last six months have had some kind of blip, you know, they’ve had a missed payment, or they’ve had a payment holiday, or they, you know, they’ve taken out credit where it seemed out of character or this and things like, in essence, that, you know, that character wise, from a kind of propensity to repay perspective, they’re still exactly the same person. And so those those changes do, perhaps shouldn’t factor in the same way they traditionally would, in terms of how they can now apply for future credit, and how that affects their their credit worthiness. So looking at these numbers, and kind of breaking them down by demographic has been really valuable in allowing us to see, you know, what, what changes can we make from a product perspective, but also, like, from a lending perspective, you know, like, what are the pockets of customers that are most in need? And how can we build products to serve them.

21:49
So customers, customers, sales probably haven’t changed from their their character into the ability to be able to pay but be able to pay back however, they’ve the economies change, which means that that might have had a had a different impact, because it certainly feels like the that the population is being cut in a different way, you got some popular some some parts of population that had probably really good jobs, and maybe those those those sectors, those employment sectors are, you know, under pressure, or the ones are probably a little bit more secure. But fundamentally, people’s characters don’t change them to try to make payments. And so it’s almost like a is added almost like another dimension that we’ve now got to think about in terms of credit risk,

22:27
and future credit risk. Really.

22:29
Yeah, I think it’s really important. And this kind of comes back to that. What indeed, you know, I think a couple years ago, the FCA put up this paper around affordability and credit worthiness, right, and how they’re sort of separate but interlinked. And you know, you what you’ve just described is exactly that, right? It’s, you know, my ability to repay, and my propensity to repay in, in the context of COVID, kind of very different things, you know, I’m, I’m still the same person from, like, you know, credit is the sort of Trust Barometer right, you know, credit worthy, so, I’m still that same person, but, you know, I’ve had this big income shock, or I’ve suddenly had to show up to support a family member, or whatever it is, and all these things, you know, that, you know, crudely, I can’t be blamed for, you know, it’s unprecedented. I used the word unprecedented. Is this, this this event that’s happened? And so how do you kind of split those out and having more granular data to be able to do that is really powerful.

23:26
The other word we need to use is new normal. So

23:31
my bingo cards just on a particular.

23:35
So what? So what do you think the future is? What do you think the future is for open banking? And as we go into next year, I mean, we obviously we’ve had extensions of payment holidays, we’ve had extensions of light support schemes. Hopefully, there’s a vaccine coming in the next sort of, you know, the next, the next, the next the next six months or so. What What’s the what do you think the future is? And we’ll be looking to 2020?

24:00
Yeah, it’s a good question. I mean, the I sort of alluded to, before that the things that get me most excited that kind of the new products, like, you know, we’ve talked about new data, as a way to kind of improve an existing process, ie the way that we check, credit worthiness for you know, maybe a loan or a mortgage or whatever. But at the moment, that that’s kind of like fitting a new solution into an existing problem. And you know, that there’s no reason that, you know, credit worthiness checks should happen at a single point in time. Because there’s a snapshot why, you know, why can’t they continually evolve throughout the life of lifecycle of a product, you know, and why can’t the product be more bespoke and custom around the user’s individual requirements? And having new information is allowing companies to do that, you know, we, we worked on a project in the credit union space that was that was sponsored by the Treasury and built a solution where customers could linked their open banking information when applying for a loan, and in doing so, would be accepted at a higher interest rate where they previously would have been rejected. But then, by demonstrating healthy behaviours through that banking connection, they could get a rebate for the additional interest that they paid. So that essentially de risking the lender and the customer. And I think that’s just the start of like a new crop of lending propositions, I know, everything sorted from FinTech businesses right through to you know, tier one, banks are kind of looking at how they serve new customers, you know, you think about the growth in the self employed and and sort of gig economy sector as well, like the, the way in which those people transact isn’t, you know, they get their salary each month, and they pay off their bills, it’s, it’s much more fluid than that. And so why sort of have a fixed view of how that customer operates and how their risk is, is measured when you can kind of do something that fits around that model of working. So I’m really excited about that, that sort of evolution. We’re also keen to see you know, that the FCA pushing forward the open finance agenda, which will hopefully see new types of financial data that wasn’t included in the original definition of open banking be available through through API’s eventually. And that will obviously be a further catalyst for new solutions and better, better serving customers.

26:22
So lights is all that the extra information you get can then sort of get you extra nuance in terms of additional or digital products and some discussion around do we need an evenly? Do we even need to have different types of lending products as a result sort of going for and getting sort of opens up some of that?

26:39
Yeah, absolutely. Absolutely. Fred, it’s

26:42
been great to great to chat with you. I really appreciate you taking the time, and we’ll chat again soon. Thanks very much.

26:49
Thank you. Appreciate it.