Caroline Plumb, founder and chief executive of Fluidly, a cash-flow modelling provider for small and medium-sized enterprises (SMEs), sounded a little disappointed at the Innovate Finance Global Summit in London.
“People were talking about this big-bang moment when the world was going to change and everything would be different, but at best it’s going to be a slow burn,” she says. “It may even be a damp squib. Let’s see. It could require years of progress.”
“The timelines are a nightmare,” he says. “Just to go through procurement is one thing. Then to do the actual implementation, you are looking at more than a year.”
Alain Falys, co-founder and chairman of Yoyo, the mobile wallet, preaches patience. This is not like flipping a switch.
“It’s more like the beta phase – in tech terms – of open banking,” he says. “That’s where we are right now. The promise is great. There’s some tech out there. But it still needs to be proved.”
However, don’t tell that to Deposit Solutions. The Hamburg-based provider of an open-banking platform that lets deposit-rich banks offer their account holders insured savings products from other banks is growing fast.
It launched its own business-to-consumer marketplace Zinspilot in September 2015 and by the end of 2016 had transmitted €1 billion in deposits.
|Max von Bismarck,|
“We are now at more than €6 billion, just through our proprietary B2C channels, which are only part of the business,” says Max von Bismarck, chief business officer.
Deposit Solutions also has 50 banks in 16 European countries on its B2B platform. These include Deutsche Bank, FFB – the German subsidiary of Fidelity – and MünchenerHyp in Germany, and Atom Bank and Close Brothers in the UK.
Deposit Solutions breaks banks into two groups.
So-called product banks, such as Atom, that are seeking funding, but don’t want to invest in a traditional deposit-gathering infrastructure, can offer terms to so-called client banks, such as Deutsche, with lots of customers, but already an excess of deposits.
Customers of the client banks can now diversify their savings into insured deposits of third-party banks, perhaps securing slightly better terms, without all the hassle of opening new accounts at them.
Deposit Solutions will not report on volumes between client and product banks, but Von Bismarck says: “In the early days, the proprietary channels made up the majority of the business, but I would now look at B2B volumes substantially surpassing that.
“We have over 100,000 clients registered on our proprietary channels. Deutsche Bank alone has white-labelled it to its eight million retail customers in Germany.”
He boasts: “We are one of the fastest-growing fintechs in the world. It’s just that personal deposits are not the sexiest market for the media. If we were in robo-advisory, we’d probably be attracting even more attention.”
The vision for the company since its foundation in 2011 has been to make open banking the standard for the €10 trillion European deposit market. So it still has a big market to pitch for even before it takes a likely second step into corporate deposits.
As Campbell at Bud would no doubt agree, Deposit Solutions was smart to begin with its own B2C channel, taking time to deal with national bank regulators, deposit insurance schemes and so being able to show proven and working technology to large banks that have started to come onboard more recently.
“It solved the chicken and egg problem,” says Von Bismarck. “Dealing with big banks considering the service can drain a lot of your resources as you go through all their vendor risk-management and data security procedures and so on.
“In the past, a big client bank might say ‘your idea sounds fantastic; let us come back to you when we have customers asking for third-party products’. We could show them that it already worked and that customers loved it.”
An open-banking market for deposits can help stabilize and diversify balance sheets, and that’s helpful for the whole banking system- Max von Bismarck, Deposit Solutions
If you think about the shift from closed to open systems that have transformed so many other industries, the idea that banks might keep customers captive in the key deposit market, even though there is full transparency on other providers’ terms, is just fanciful, according to Von Bismarck.
“There is a big structural driver here for banks that want to be the single point of sale for all their clients’ financial services needs,” he says. “To own the customer, they will need to offer a hassle-free choice of other banks’ products. If client banks do that then, even if they don’t have all their customers’ assets and liabilities on their own balance sheets, they can still be the central hub for their customers with a higher chance of cross-selling.
“This is transformational. We are moving into the age of the platform economy and many banks seek to establish themselves as the go-to hubs for their customers.”
Client banks can decide which of the third-party bank products they curate they might offer to which clients. No savings products are offered that do not benefit from deposit insurance.
When clients choose a new savings product, it takes just minutes to shift their money; more like buying shares through their bank’s online brokerage rather than the laborious process of opening a new bank account. The transaction counts as self-directed.
For product banks, plugging into larger established banks’ customer bases might offer a twin benefit, allowing them to reduce terms and to diversify funding. An additional stable retail deposit funding base abroad is cited by the European Central Bank as a benefit because it will often be affected by shocks that are different to those impacting home-country depositors.
So, Atom Bank, for example, might now raise funding in Germany where it has no deposit gathering network of its own. Oney, the French bank that partners with retail stores providing payments services and has never accessed deposit funding at all, raised €600 million of deposits in nine months through Deposit Solutions.
CKV Spaarbank, a Belgian bank, sourced €300 million within three months through Savedo, a B2C proprietary channel that Deposit Solutions acquired in 2017. This had a direct strategic impact for the bank, since the funding for CKV’s recent acquisition of a loan portfolio from Record Bank – a subsidiary of ING – was sourced entirely through Savedo.
Close Brothers can fund its euro asset book in Ireland from a much wider pool of depositors across Europe.
“HSH Nordbank headquartered in Hamburg, traditionally shipping focused and wholesale funded, hasn’t had a retail franchise for deposits, but has begun using our platform and sourced hundreds of millions of euro in deposits in a short period of time,” says Von Bismarck.
Regulators have always viewed retail deposits as a stable form of funding. No doubt they will keep a watch on whether a more open market makes them less dependable. The evidence so far is that it encourages greater diversification among depositors, but not a marked increase in rate hopping. This is a convenience service.
Von Bismarck says: “From a macro-prudential point of view, we are seeing more banks specialize in certain areas, for example trade finance or factoring, that don’t want or need to run large retail infrastructure across Europe.
“An open-banking market for deposits can help stabilize and diversify balance sheets, and that’s helpful for the whole banking system.”