Regulators in the EU and UK will force banks to open up access to their customer data by January 2018. This will have profound implications for both incumbent providers and the new entrants seeking to challenge their dominance. Open banking concept will lead to the creation of new business models, including banking as a marketplace. Here, a bank integrates third-party services into its own platform, effectively turning itself into a portal, or marketplace, where consumers can access products from across the market in one place. This model has obvious advantages for new entrants that lack the resources to develop a full range of in-house products, and it will allow them to mount a credible challenge to established providers more quickly and inexpensively than could otherwise be achieved. Marketplace banking is great for the regulators in the EU and UK as they can focus their limited resources on creating a single product – usually a current account – and just outsource the rest to give their customers seamless access to the best products from across the entire market. The cost and time savings associated with this model are potentially huge.

Marketplace banks produce a limited number of in-house products, and instead they rely on third parties to provide the bulk of their products required. This approach is being made possible through the use of open APIs, which allow third-party services to be fully integrated into a bank’s systems and user interface.

N26, based in Germany, is a first mover in this area. It has aligned with TransferWise to let customers make foreign currency transfers, and with vaamo to make investments, all from within its mobile app. In both cases, N26 has chosen for co-branding, using the “Powered by TransferWise/vaamo” formulation. It earns money from these partnerships, receiving, for example, monthly fees and annual management charges from users of its vaamo-powered investment service.

In the UK, new entrant Starling Bank has recently launched the beta version of its current account, the only product it will build in-house, and it has a Marketplace Platform, through which it will give its customers access to external products ranging from P2P loans to investments, and like N26 it has partnered with TransferWise. In the longer term, it plans to offer customers a choice of multiple products in each sector, and to partner with companies in the retail and lifestyle sectors. It is clearly hoping to embed itself into its customers’ lives beyond the financial sphere.

Banks that want to use a marketplace approach need to consider several factors. They must decide which products should remain in-house and which should be outsourced, establish the criteria by which partners are selected, and decide the extent to which customer data should be shared with third parties. Other factors comprise branding strategy – should partner products be white labeled, co-branded, or retain their original branding – and whether the host bank should make product recommendations or leave product selection entirely to their customers.

In February 2017, the CMA issued its Retail Banking Market Investigation Order. This will set out the full list of remedies banks need to adopt in order to satisfy with the final report of its retail banking market investigation, together with a timetable for implementation.

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