Four years ago, Liz Lumley, fintech specialist and former Managing Director of Startupbootcamp FinTech London, was invited by a close friend to the first London hackathon ever. The Google Campus had just opened, and according to her friend, the venue would be full of developers, designers and coders, just like in Silicon Valley:
"I was like: 'Sweetheart, I write about really big, expensive adult financial technology – why would I want to spend my Friday evening with a bunch of children as they build payment apps for fun?' And she said: 'There will be free beer and pizza'. So, I went and got my t-shirt," reminisces Liz Lumley.
At the bar, paying for her beer with a tweet, Lumley bumped into an acquaintance from a major UK bank whom she had met just a few days earlier, only this time no suit or tie in sight:
"That's when I thought: this world is changing, and it's changing from within – there are people who are concerned about making banking better, and they're looking everywhere to find out how to do it. I realised that I no longer worked in financial technology, I worked in fintech," says Liz Lumley, whose passion for financial technology began by answering an ad in the New York Times in 1994 when she barely knew what a stock was.
Open Banking is coming
Now in late 2017, with the updated EU Payment Services Directive just around the corner, and a similar directive in the UK by the Competition and Markets Authority (CMA) forcing the top nine banks in the UK to open up their platforms for new entrants, Lumley predicts that Open Banking will be as much of a revolution to the industry as were the ATM and smartphone, which made banking possible 24/7 and put the branch in everyone's pocket respectively.
"This is coming, and everyone is ready for it. Yet no one, including me, really knows what's going to happen," predicts Lumley who recalls hosting a roundtable in London a couple of years back when the PSD2 papers were released, looking at easy access to fast payments in the UK. The Faster Payments platform was built in 2008 specifically for the four largest UK banks, and according to Lumley, none of them really appreciated the competitive advantage it gave them:
"Now with all the new entrants to the market they all want access to this Faster Payments. And of course, the regulators are responding and making it easier. At this roundtable, none of the banks could quite understand why this gave them a competitive advantage, and all the new entrants around the table were like: 'yeah, it does'. And someone stood up at the roundtable and said: 'I went to a fintech event yesterday, and every single start-up had read the new PSD2 documentation backwards, forwards, upside-down, they read it to their children at bedtime - it was intense.' And he said: 'How many banks around the table have read it?' And not one had. The new entrants know exactly how powerful being connected to an established banking platform is," explains Lumley.
In her 23 years in the industry, Lumley apologetically explains, she has never known a bank to look at new regulation aspiring to do over and beyond what is required of them. Come January, incumbents will find themselves working alongside new entrants, including challenger banks such as the Starling Bank in the UK, that have the advantage of being built digitally from the onset.
Fintech is a mindset
But the worst thing an incumbent could do is to become paralysed like a deer in headlights at the prospect of Open Banking:
"When fintech started to become a buzzword, many people at banks felt threatened, including people who work in different business divisions - everything from car leasing to pet insurance to mortgage. To me that is not the right way to look at fintech. Fintech is a mindset and is about making banking better, making financial services more accessible, cheaper and simpler. And you need the banks to be part of that, so to me, it's never disruption. It's not us and them. It's all part of one eco system, and I don't think you can make a cake with two ingredients. You need to make a cake with all the ingredients, so banks, big tech, big financial institutions, small start-ups, innovation labs – they're all part of that eco system that makes fintech," says Liz Lumley, cautioning the industry against becoming dazzled by innovation to the extent that it forgets that a bank is still a secure, regulated entity that takes deposits and makes loans:
"Keeping your money safe, making sure you have access to that money, is very important, so I think banks should get their act together and be that platform. As much as I don't necessarily think that Amazon and Google are the evil empire, they're not banks. They're not regulated in the same way, so my hope is that banks get their act together and change," says Lumley.
She recommends banks to bring innovation into every department and completely rethink product silos, organising themselves around different customer segments instead.
Asia is coming
Meanwhile, as the banking sector in continental Europe and the UK is bracing itself for threats and opportunities brought about by the updated Payment Services Directive and that of the CMA, the game continues not only on a regional but also on a global scale:
"While we're busy debating all of this in Europe – PSD2, CMA, Brexit – this is going on: Silicon Valley-based start-up Stripe struck a deal with AliPay and WeChat, which has China locked down as a market. They've got experience of dealing with a billion people, and they're coming! So, I'd kind of be afraid of these guys too," concludes Lumley, making her audience wonder if size does matter after all.
Hear Liz Lumley explain her thoughts on fintech as a mindset, and much more: