Enjoy the walled garden Starling, but don’t forget interoperability always wins

Starling’s Market Place is a knight’s move that launches a new category of syndicated, curated financial service ecosystem; something that cxpartners’ Financial Services team predicted back in the winter of 2015.

Then we talked about new experience layers and AISPs (Account Information Service Providers) and the forthcoming revolution in FS. We also talked about the future shape of the industry and the forthcoming models that we were sure would emerge. We looked at the way online and hybrid business models have developed over the past ten years driving online commerce; discussed the new opportunities and threats forthcoming legislative changes would bring and we rooted this in our considerable know-how in solving problems between people, their money, and their banking experiences.

So, Starling Market Place, accelerated by Open Banking thinking, ushers in the beginning of the plug 'n' play personal financial portfolio – the curated bespoke bank. 

At the beginning of the Starling story I was curious. How were they going to monetise the bank? Current accounts don’t generate much if any revenue, and in traditional banking that revenue comes from the cross-sell, and Starling didn’t seem about to develop other products.

It seemed improbable that even a brand new, full stack, low overhead digital bank such as Starling would have enough current account cash floating about to well, keep it afloat. But on reflection it became clear that Starling were thinking about this in a new way – they would publish their account APIs to a secure middle layer, select attractive partners who complimented their offering and plug them into a walled garden for which they provided the current account to a set of syndicated FS brands. Presumably gaining revenue from referral payments and maybe a membership fee. In other words, as with traditional banks, Starling planned to gain their revenue from the cross-sell without actually having to own the delivery of those products – I hate to say it, but yes, it’s Uberish.  

But the step is also a logical one towards giving customers the best FS service portfolio. Why try and do all of it when Starling can select the best of breed – as long as the best of breed want to come to the party – and don’t prefer their chances as stand-alone product & service propositions.

To date Starling have invited Transferwise, a currency exchange FinTech poster child and they are keenly looking for others. They badly need them and that is the Starling gamble – making this happen must be at the forefront of Anne Boden’s mind pretty much all the time.

But the personal syndicated FS portfolio, built around a curated set of services is an intermediate step towards what we believe is a different, inevitable end-state. 

18 months ago we sketched out how we thought this would evolve, and it’s happening.

The old world order is our current predominant model, multiple FS products bundled within single brand ecosystems – these are our familiar big bank and building society propositions and we know that they have trouble getting these individual product propositions right for customers, they have trouble innovating, they aren’t nimble and the overheads of maintaining them competitively is massive.

Focusing on unbundling single services and doing them really well had defined the Fintech (and InsureTech) revolution. Invariably these businesses have lower overheads, often more competitive pricing and innovative business models and a laser focus on the customer experience. However it becoming clear that this model is just one element of the revolution in FS.

The evolving world order is an evolving, intermediate state of which Starling is the trail blazer.  Providers offer curated ecosystems of different-brands bundled around a single organising proposition. And a current account makes a lot of sense as the firehose of funding that feeds all the market place brands plugged into an invited middle-ware layer. 

This is Starling's emerging MarketPlace and if it works, I anticipate they will swap members in and out over time. It wont be static, and it will enable Starling to scale and re-shape itself according to changes in the FinTech landscape as well as the changing needs and expectations of customers.

Many similar ecosystems could emerge and thrive, perhaps all aiming at slightly different audiences, with slightly different propositions  – in fact having a centralised organising trusted brand is probably necessary to provide a stable centre of gravity for unfamiliar and changing proposition bundles. First Direct are about to offer a similar model - and of course they are a known brand and backed by the deep pockets of HSBC.

The natural end state of this particular model will be customer assembled/curated FS ecosystems that plug into an Interoperable layer. There are so many examples, but if you doubt that interoperability always wins think about the recent painful journey of digital music away from digital rights. Unless there are some pretty powerful commercial interests working to protect non-interoperability (Google/Apple/Facebook) or legislation that prevents this, consumer choice will predominate, walled gardens get broken down and interoperability always wins - and so it will be for banking.

Making these choices won’t be for everyone, but it will be for many – and as the industry evolves with the assistance of smart technologies, a smart interoperable middle layer will emerge that allows the customer, or their agent, to change and optimize FS ecosystem membership to meet their needs – and I suspect this interoperable middle layer will in due course become predominant.

In the meantime, Starling and their competitors have the future to themselves, but it won’t be forever.

...And data

Of course data will have a role to play in this. The winners will have worked out how to offer a really useful (PSD2-style ) AISP as well as made sense of the Personal Information Economy (PIE) opportunities ushered in by GDPR – and powerfully combined these two legislated for, but radical catalysts for change.