Piecing together HSBC’s Open Banking puzzle

The bank intends to take its partnerships-heavy strategy global in due course.

No major bank has thrown itself into the Open Banking era with more enthusiasm than HSBC. In addition to being a member of the ‘CMA 9’ – the nine banks and building societies required to give third-parties access to their customers’ transactional data under Open Banking rules – HSBC is proactively pursuing the opportunities presented by the new framework.

Broadly speaking, HSBC has three projects under way: a standalone account consolidation app for existing customers called Connected Money (some readers may have seen the Richard Ayoade advert), an invitation-only 'marketplace banking' testing app named Artha by First Direct (which is owned by HSBC), and a general drive to utilise other banks' data to improve lending decisions and other facets of its business.

Raman Bhatia, head of digital bank at HSBC, began an interview with AltFi by saying that when Open Banking is better entrenched and better understood, it will ‘ultimately make customers better off’.

Connected Money

Bhatia first summarised the Connected Money initiative, which has garnered a fair amount of press.

“Connected Money is our attempt to re-state customers’ banking relationship with us, and in general for banking as a whole, to one of engagement around their finances. So from a very transactional one – move money around, check my balance – to an engagement one…” he said.

He explained that Open Banking is just one part of the project. Beyond giving customers an overview of all their current accounts, HSBC wants to provide ‘financial coaching’ to customers through messaging and nudging in order to drive greater financial awareness and wellbeing.

Connected Money is a standalone app – sometimes referred to as a ‘flanker brand’. It currently enjoys a 4.8-4.9 star-rating on the app store, which Bhatia says shows that customers have embraced the new offering.

The main objective seems to be to position the app as a central financial hub in customers’ lives. Bhatia thinks this opens up the opportunity for ‘very different sorts of lending down the road’.

Artha

First Direct was arguably one of the first challenger banks in the UK when it launched way back in 1989, and was later acquired by HSBC in 1992.

In October of last year, HSBC partnered up with fintech firm Bud for what was dubbed an Open Banking trial. The result of that trial was another standalone app by the name of Artha by First Direct.

Quite why it’s called Artha is unclear. Certainly Bhatia isn’t sure. The Sanskrit word Artha literally translates as meaning, sense, goal, purpose or essence, depending on the context – in other words, exactly the kind of brand-name one could imagine a bank-brainstorm landing on.

Practically speaking, Artha is an attempt to test the marketplace approach to bundling together services made available by a range of third-parties, while also providing financial management tools. It is open to both First Direct customers and non-First Direct customers on an invite-only basis, and is being developed within the FCA’s innovation sandbox.

Bhatia thinks Artha represents an effort to do ‘something that no incumbent bank has done before, which is to offer third-party services and see customer adoption of that’.

It has, of course, historically been anathema to banks to consider cross-selling anybody’s products but their own. Bearing that in mind, Artha represents a significant departure from the traditional banking model and its success could have an equally significant impact on the future of both First Direct and its parent firm HSBC.

Bhatia made no bones about the fact that Artha has been set up to ‘see how customers respond to marketplace banking’ (which may in time becomes a widespread phrase).

Accessing data

HSBC is also testing out ways to improve its core operations – especially in the field of lending – through accessing the data of its competitors under Open Banking.

The bank joined forces with fintech tool consents.online in May to help manage access to this data. The consents.online platform allows customers to monitor and control how their data is used.

HSBC’s stated intention is to use its competitors’ transactional data to launch new consumer products. Bhatia said that one of the main aims is to use the data to ‘make better lending decisions’, by, for example, getting a better sense of affordability. Broadly, it is unsecured lending to consumers that the bank will focus these efforts on. But the bank is also looking into how it might leverage Open Banking data to improve customer journeys, through automatically populating online forms, for instance.

For fintech firms like consents.online – a subsidiary of Account Score Holdings Ltd – HSBC’s efforts represent a major opportunity. But there is, for me, a question mark over how such tools will fit into the open architecture ecosystem in the long-term. Will HSBC and others not simply build their own permissions-management platforms in time?

“Partnering with consents.online and AccountScore is absolutely a long term play. Our API integrations and consent management platform provides structured and clean access to bank data. However, one of the most valuable needs when using transaction data from the Open Banking APIs is understanding how to use that data to create economic value. Our market leading transaction data categorisation and recurrence engines allow our clients the tools to be able to vastly optimise and boost their lending processes,” argued Emma Steeley, commercial director of consents.online.

On whether HSBC is seeing strong demand from fintechs for its account data, Bhatia said: “It’s still early days on this being stable, settled and third parties really coming up with new models to tap into this data, but it’s welcome. It is still early days for the APIs to be available – readily available.”

What next?

What is perhaps most interesting about HSBC’s proactive approach to Open Banking is how it thinks about the framework: less of an end in itself, more of a means to an end.

The bank seems to have decided that ‘open architecture’ is the way forward – giving it the capacity to partner with third parties through APIs, with its brand in a pivotal position, and Bhatia believes that regulation being ‘ahead’ in the UK gives banks an opportunity to accelerate this vision. Ultimately, however, it doesn’t matter whether partnerships are delivered via Open Banking or through proprietary means.

“For either model to sustain you will have to create APIs, you’ll have to have a developer portal, you will have to have an opportunity avenue to both expose APIs but also consume data. That’s what we have imagined all along and Open Banking acts as the catalyst for that,” said Bhatia.

It makes sense then that when I asked whether HSBC would be taking its Open Banking strategy global, Bhatia didn’t see regulation as much of an obstacle.

“Very much so and I think the regulation is already allowing it to an extent…” he said. “The whole idea of Open Banking is moving beyond the UK and Europe to other markets including Hong Kong, Singapore and elsewhere in Asia Pacific. It is very clear that this would become the way banks and third parties, new players interact with each other.”