The Center for Data Innovation spoke to Mads Emil Hansen, co-founder and CEO of Accepty, a UK-based fintech company that provides a back-end solution that financial services companies can plug into to offer their customers personalised credit solutions. Hansen discussed how using the UK’s Open Banking infrastructure, Accepty makes it possible for consumer credit providers to access and analyze customer data and turn it into bespoke financial services offerings.
Ben Mueller: How did you get the idea to set up Accepty?
Mads Hansen: At the time I got the idea for Accepty I was working for an online lending platform that successfully used technology and data as a competitive advantage over large incumbent banks. My co-founder, Robert, and I realized that the modern credit data analysis technologies, such as stable and well-functioning application programming interfaces (APIs) and instant credit scoring tools etc., were not fully utilized by price comparison sites. The few data solutions that were available were powered by other credit brokers, who had a vested interest in directing users to certain products and would thus compete with the same price comparison sites whose search engines they powered. So we created Accepty, which is a lender panel API that integrates over 70 product providers and offers them unprecedented analytics and reporting tools, also accessible via API. This allows lenders and credit introducers to easily work together to deliver a better, more personalized outcome for the end-user, rather than the one-size-fits-all credit models that dominated personal finance in the past.
Mueller: Has Open Banking fundamentally changed the financial industry in the UK and in Europe?
Hansen: Not yet. Open Banking grew out of the EU’s Payment Services Directive 2, which is a mandate for all financial providers to create interoperable data gateways to allow their customers to port their data to other providers if they choose. In theory, this opens up a huge data universe that enables customers to create value out of their financial data such as their bank account transactions: by giving financial services providers detailed insight into their behavior, customers can get better deals on all kinds of products. Especially in lending, many expected Covid-19, following lockdowns and the introduction of the UK furlough scheme, to lead to a full and quick adaptation of Open Banking for credit decisions, as it obviated many of the established ways of dealing with customers and offered a data-rich way of acquiring new customers. Though almost all lenders are either using or exploring Open Banking, it has not yet fully flourished and it definitely has not benefited the end-user to the extent we were hoping, at least not yet. So far, Open Banking has been seen as an extra “nice-to-have” data source used more to tighten lenders’ credit policies, when the idea is to actually help lenders open up for more people traditionally not seen as creditworthy based on credit files alone. Hopefully, as financial institutions become more comfortable with using (and sharing) Open Banking information, we will start seeing more focus on how it can improve the outcome of the customers.
Mueller: Has the rise of standardized APIs spawned a new generation of “unbundling” businesses in fintech that provide services formerly conducted in-house?
Hansen: No doubt the standardization of APIs has enabled a lot of innovation in the financial industry and will continue to do so. Our own Accepty business model is a result of lender API standardization and API accessibility: creating common data protocols for different organizations to share information with each other, and transfer protocols to allow for data to be ported at the request of customers. Interestingly, we are starting to see bigger banks moving in the direction of developing their own APIs to make their services available to other businesses and customers.
Having said that, it will likely be a while before these same banks create new products from scratch using third-party APIs instead of building the products themselves. But it is only a matter of time before the benefits of using third-party APIs outweigh that perceived risk and loss of control that a lot of banks fear. APIs are definitely the future way of putting together modern banking products and customer experiences. The most recent example is a digital bank building and launching its entire credit card product on top of a number of APIs available via Stripe. Robert Coase’s famous theory of the firm suggests that companies keep services in-house only so long as there is a cost advantage to doing so. APIs dramatically lower the cost of providing data analytics and aggregator services and we expect more and more banks to take advantage of the competitive edge that specialized third-party API providers have in building these services and offering them at attractive prices.
Mueller: In general, what has your experience been with the tech-savviness of legacy banks?
Hansen: Banks are still far behind when it comes to tech-savviness, but more importantly, they are behind in terms of work culture. Talented and ambitious software engineers and intrapreneurs want to work at places where they can see the result of their efforts. Banks are not good at making decisions and shipping code at pace in a manner that is attractive to this new breed of employees. When speaking with people at banks they are almost defeatist about this: we know, but because of our size and legacy it has to go through committees A, B, and C, and then the compliance department comes in. It is going to be the death of banks. Personally, I think most banks are better off acquiring a fintech startup and keeping them as separate businesses and then utilizing APIs to access their services, than building themselves.
Mueller: What development in finance and technology makes you most optimistic about the future?
Hansen: From a pure business perspective, I see a lot of potential in using AI in lending decisions, data processing, and beyond. Whether that makes me optimistic about the future as a citizen is a different story. The way we apply these new “big data”-enabled technologies and opportunities will be crucial. Covid passports, digital money, digital identities, and more will all produce vast amounts of data that, if utilized the wrong way and monopolized inside walled gardens, can end up under-utilizing the true potential of this really rich data universe that is coming about. Governments and businesses shouldn’t let themselves be led by autocratic countries to improve on their own bottom line at the cost of liberty, our model should be that data ends up benefiting users and giving them more control and insights into their behavior. This is what we are doing at Accepty. We think it is important that strict safeguards are applied in terms of how data is analyzed, harnessed, and commercialized, and that users are given control over their data so that they can participate in monetizing its value. Personally, I believe democratic societies are well-placed to achieve this, and a lot of the worries about tech pessimism are overblown if only we put the right types of frameworks in place which empower citizens rather than closing off technological opportunities. We can create immense value out of data without sacrificing rights.
More prosaically, I find the increased activity in mergers and acquisitions between banks, tech businesses, and fintech very interesting as it has the potential to change industries and competitive dynamics and force large and sluggish incumbents to become more nimble and responsive to the needs and realities of their customers.