The decision by German challenger bank Number26 to offer direct, in-app access to TransferWise’s international payments service shows how open banking protocols will revolutionize partnerships between banks and fintech specialists.
Number26 has ambitions to construct a ‘fintech hub’ within its app, through which it aims to fully integrate access to a variety of third-party services in a seamless user experience. Its first deal is with TransferWise, which will allow customers to make payments from euros into a range of other currencies.
Both parties stand to make significant gains from this arrangement. Number26 will save on the costs of developing its own payment service and will enjoy higher levels of customer engagement and goodwill, while TransferWise will gain immediate access to Number26’s 130,000 customers.
TransferWise has created a ‘fintech API’ to facilitate such partnerships with banks, messaging services, and telecoms providers, and it is through open APIs (application programming interfaces) that the provision of financial services will be transformed.
Verdict Financial has previously written about how providers such as Fidor Bank are using an ‘app store’ strategy to optimize their propositions, and initiatives such as the UK’s Open Banking Standard will make open APIs a universal feature of the banking system.
The transformation is gaining momentum. Innovative providers such as Number26 and Fidor Bank are leading the way, but the more established banks will be forced to follow suit. If they fail to do so, they will be overtaken with respect to service provision, and will become vulnerable to rising levels of customer defections.