An AppStore for banking products? Interview with Starling Bank’s Megan Caywood
Much has been said about how traditional banking business models will be outdated in the medium term. New collaborative ecosystems between banks and Fintechs will become the new normal, and some players are clearly better positioned than others. To put it differently, the future of banking revolves around the Appstore, not only the app.
Fortunately, we had the opportunity to interview Starling Bank‘s Head of Marketplace Platform Megan Caywood, a leading voice in the challenger bank ecosystem, who is in charge of developing this platform framework for her bank.
Let’s start with the basics, what is Starling Bank and how does it differ from other challenger banks?
Starling Bank is a mobile-only bank focused on creating the best current account in the world. We’re building our core banking platform from scratch while simultaneously building our Marketplace platform to provide an API layer to connect to third parties and integrate financial products and services from across the market. The point is that we don’t need to spend precious resources reinventing the wheel within services such as foreign exchange or mortgage products, since this horizontal retail banking product set has already been completed by other Fintechs. It would be redundant to repeat what many companies are already doing.
Instead, we embed an API-based approach into everything we do and prefer to rely on APIs to connect with third party partners and developers and be able to intelligently pull them into the Starling app, becoming the gateway to the customer’s entire financial life. Therefore, this gives us the advantage of being able to access market quicker and at a lower cost, while also providing transparency to users and a choice of financial products from across the market.
What are the advantages of building your own core banking system from scratch?
This grants a lot of advantages in terms of implementing a wider range of features at a higher speed. Some challenger banks are completely reliant on external providers that give them access to different services, so they are subjected to what a vendor is capable of producing and in their timeline.
For us, however, since we’ve built out that core platform ourselves, we’re enabled to implement changes and new features much faster and more efficiently. For example, let’s say that we come up with an amazing new algorithm for detecting fraud. Because we built our banking system from scratch, all we need to do is turn to the engineer next to us, have that conversation and implement it, then can deploy and have it ready to Demo on Friday. Otherwise, we would need to go through all these different layers and meetings and rely on the capabilities of an external system, which would diminish our ability to innovate and release new product features quickly and easily. So, in sum, this gives us a higher change velocity.
The title of your job position is ‘Head of Marketplace Platform’. Could you tell us something else about your role in the company?
I joined Starling Bank in June, coming from Xero, an accounting software company. At Starling Bank, I lead across the API Strategy and Marketplace Platform. This translates into creating our strategy for building a technology marketplace to integrate with financial services from across the market, as well as leading the team to design and develop the API layer and Developer Portal to connect with third parties.
Will you follow a ‘marketplace model’ (with a limited number of partners) or a much more open ‘plug&play model’ (with many players involved in the platform)?
We are going for a hybrid of that model I suppose. Initially, we’d like to creating an integrated experience through some specific partnerships in certain key areas – wealth management, insurance, FX – but again, we are constructing an open API so anyone can build on top of our platform once we launch. That’s why we are creating a process for anyone that aims at integrating into our ecosystem. This will enable us to have an open marketplace with many players involved in the platform, while still maintaining the user experience.
Regarding the relation with your partners, will they retain their brand or would you opt for a white label model?
We are about transparency and authenticity and are happy for our partners to retain their branding. We are focusing on the current account service, so preserving our partners’ branding seems a more logical strategy so that our customers will be aware when they are using a third party product in which they authenticate.
For an example of this, imagine you have a Starling current account and your budget shows you have a surplus of savings since you exceeded your targeted goals for saving this month. From there you could easily move your money into an investment in a peer-to-peer lending service such as RateSetter or ZOPA, and that would take you such providers within our UI.
Does this mean that you’ll have a limited amount of partners for each of these products? And if not, how are you planning to preserve a consistent user experience?
We’re aiming to build an open API that allows anyone to build on top of the Starling platform, which will translate into a marketplace with lots of different products and services. There will be multiple partners for the different products where the customers themselves can choose from based on which is the best fit for them. The specific number of options will grow progressively as we keep integrating new players into the platform while ensuring a consistent user experience.
There is also the prospect that eventually the marketplace could evolve such that multiple partners could bid in real time for the opportunity to service each customer requirement, thereby replacing comparison sites, and also reducing the number of options presented within the user interface.
And what about opening the platform to third-party developers? Will anyone be allowed to offer their app or product to Starling clients in the platform?
To the first question – yes, we’re building out an open API to enable third parties -i.e. Players beyond the key partners mentioned before- to build on top of our platform and for users to be able to safely share their data with these third parties as they choose to do so. To enable this, we’re building out a Developer Portal which will allow users to access their own data as well as third parties to develop on top of our platform to make this possible.
For the second question regarding these providers to offer their app to Starling clients on the platform – we’re keen to maintain the quality of the user experience in the Starling application, so not every app built on our API will be available within Starling. We’ll have different application types, depending on whether the type of integration being built is for a private user, a third party developer or a partner, and these developers can submit an application per these different types depending on their specific requirements, and we’ll review and select before these applications can appear within the app.
Could we draw a parallelism with the Apple or Android app store model?
For sure. It’ll have a bit more parallelism with Apple which, compared to Android, has quite a bit of a higher standard for launching an application within their app store. So, although we will build an open API for people to access their data and for third parties to build on top of the platform, we’ll also have a process of reviewing and enabling people to submit an app to be in the Starling Ecosystem, so we make sure we preserve the customer experience as well.
What is your approach to the customer ‘ownership’ for this kind of collaborative environments?
Our view is that data belongs to customers. Traditionally, banks have a culture of “owning the customer” and customers are breaching their terms and conditions if they share data. On the other hand, we want customers to be able to share their data when they want, and we want to help them do this securely.
What normally happens with traditional banks is that they incentivise customers to join them by giving money-losing offers – with bonuses for instance – and then they monetize by cross-selling them other financial products, getting into the so-called ‘customer lock-in’. Then they feel they ‘own’ the customer and his or her data. And even if such customers want to share that data externally, with an account aggregator for example – it would be violating the terms of services and then if they have fraud in their account, then that’s all on them.
We have exact opposite idea. The customer owns the data, and it’s up to them who they want to share it with, and we just want to enable them to share that in a secure way. So, again, we don’t feel as our customer are only Starling’s customers.
So, I guess you don’t see traditional banks entering this marketplace model in the short term.
There’s a clear conflict there. Traditional banks have hundreds of retail products, and entering into marketplace banking means disrupting their current revenue streams. So understandably, they are a bit more hesitant to dive in.
One of the big questions right now is whether, even with the open banking legislation in place, the big banks will comply with the spirit of it or if they will just comply to the letter – i.e. to the minimum amount necessary just to be regulatory compliant. I was at the open API steering committee last week and that was a huge topic of conversation. However, ultimately they are going to have to be competitive in the space, so even if they don’t dive in initially, they eventually will.
Would you consider the possibility of allowing customers to try your platform -let’s say through some kind of demo account- before they become clients?
I understand the rationale for such approach. However, in Starling, we want to enable the customer to set up an account very very easily, within less than five minutes. We don’t mandate any type of minimums on deposits, so you can open the account, put it a bit of money on it, and try it out -using it almost like a pre-paid card- and then if for whatever reason you don’t like it, you can easily close it too.
And what do you think about BUD-like ecosystems? Do you see them as competitors?
I think they’re great. Bud has a cool app, and a great team behind it. Equally I also like aggregator sites like Mint and Money Dashboard. Although they have a similar goal – to enable people to search and access financial products and services through their app -, they aren’t interested in building out a core banking app and aren’t aiming to build the same type platform or ecosystem that we have. We are building a current account services, so unlike them, we also need a banking license. That’s why we don’t see them as competitors.