This is a transcript of the podcast Ozone API – “Open Banking shouldn’t be just a compliance exercise” between GRIP Senior Reporter Carmen Cracknell, Ozone API CEO Chris Michael and CCO Huw Davie.
[INTRO]
Carmen Cracknell: Welcome to the GRIP Podcast. I’m joined today by Chris Michael, CEO and Huw Davies, Chief Commercial Officer of Ozone API. So I’d be really interested to hear firstly, how both of you got involved with Ozone API and your backgrounds.
Chris Michael: First of all, thank you very much, Carmen. Fantastic to meet you. I’ve been involved in the tech space for too many years now. But back in 2016, I was approached by the UK Open Banking Implementation Entity to help set up the construct of open banking in the UK. So that’s kind of was my role there, was to lead the development of the open banking standard. And that’s kind of where I metHuw in 2017. We actually founded Ozone in 2017. But I’ll let you talk a little bit about Huw’s background and the foundation of Ozone.
Huw Davie: Yeah, thanks, Chris. So yeah, I’m Huw Davies. I’m one of the other co-founders. My background, I’ve always been in banking and payments for the last 26, 27 years now. So many years helping build sort of innovative payments businesses within big companies. And then for the last six years or so, I’ve been in this open banking space. So as Chris mentioned, we work together, helping to design and deliver the blueprint for open banking in the UK. UK was the first market that did it in a very structured way following regulation. And as Chris mentioned, we were part of the lead ship team at the entity that was set up to design and deliver open banking. So whilst Chris was leading the development of the standards, I was leading the development of the ecosystem. And Freddie, our third co-founder was the architect and the technical author behind the standards. And yeah, that’s where we started working together on Ozone. I mean, basically, we had a view that this shift towards open finance would be massively transformational, but it had to be built on good technology. And the banks were finding it really hard. So that’s how and where we started.
Carmen Cracknell: Great. And what is it exactly for kind of a layperson? Could you just explain a bit what Ozone API does?
Huw Davie: Yeah, sure. So we basically provide technology to help both banks and central banks implement open banking and open finance. So we provide a thin specialist technology layer that sits on top of bank systems and really acts as the front door for open banking. So we handle all of the hard stuff around making sure those interfaces are really secure, and they meet the right standards, and they comply with regulation. And they have all of the tools required to allow this open banking access. And I’m sure we’ll talk in a moment about actually what is open banking and what does it really enable. But we provide a very specialist technology layer that sits on top of the bank and really allows that secure access.
Carmen Cracknell: Yeah. And if you could a little bit describe for our listeners what makes open banking different and distinguishes it from traditional banking, that would be great to hear.
Huw Davie: Yeah, of course. I mean, I guess traditional banking, I think is characterized by actually going to your bank. So I mean, I remember getting my first bank account when I was a kid and you turned up, you paid your money in and if you want to get wanted to get your money out, you had to go to the branch with your book and get money out. I’m definitely aging myself now. But for pretty much the entirety of the banking industry, the way that you engaged with your finances was by going into your bank, whether that was the branch more recently, whether that was online banking, mobile banking, call center banking, you had to go. The bank was a kind of a closed vault and you had to get through their doors to get access to your account. But the world’s moved on, I think, a huge amount. So right now, so much of our life is, our day to day life is digital, it’s online, it’s in platforms. And it’s really important that the banking industry sort of moves with that. So just to take a few examples. So as a company, we use a platform like Xero to run a lot of our company finances and keep a handle on cashflow and all of the money coming in and going out. It’s really important that all of our financial information is in that platform.
Now, what open banking enables is us to securely create a connection between the accounting platform we’re using and the bank account that sort of holds the ledger and all of the account information so that platform that we use to run our business is continuously up to date. Another example is, as a customer, if I’m applying for a loan or a mortgage, then typically I have to provide a huge amount of information. So I might have to, I’ll put in my income, I’ll put in all of my outgoings, my regular payments. So I’m going through a mortgage application process at the minute and it can be very lengthy. But if I can provide secure access to the information in my account, it can make that process much, much quicker. So I don’t have to provide all of these copies of historic statements, fill out all of my incomings and outgoings. I can actually give the lending platform access to my information so they can use it to fast track the process and make a better decision. So open banking actually acts as a secure way of enabling you to use your financial information, your account in other experiences, whether that’s using information to help solve problems and make life easier like our accounting platform example, or the lending example, or whether it’s enabling payments to be embedded in an experience somewhere else. You don’t have to go back to your banking mobile app to make a payment or even starting processes. It enables all of the normal things you do with a bank to be embedded in other digital platforms so they can be in the right place at the right time with the right context, but all done in a very, very secure standards-based way so that it works.
Carmen Cracknell: Yeah, and maybe what you’ve just said relates to my next question. We focus here at Global Relay on regulation and compliance. So I was interested to hear that what your service essentially enables financial institutions to meet regulatory requirements. How does it do that?
Chris Michael: So I think first of all, I think it’s important just to build a tiny bit on what you said. I mean, open banking is really this kind of bit in the middle that enables this secure connectivity. If you think about what open banking is, there’s really four actors involved. You’ve obviously got the regulator who kind of sets the rules and makes sure stuff is happening as it’s supposed to be happening. You’ve got the banks on one side who hold the accounts where the data sits or where the payments are actually made. You’ve got the fintechs or third parties on the other side who are accessing the customer’s account. And then of course, you’ve got the customer, which could be an individual or a business. And I think the key thing to bear in mind is that open banking is the bit in the middle that makes all of this happen. The actual end service that gets provided to the customer isn’t an open banking service. It’s typically, as Huw described, it might be an accounting service or a lending product. That’s not an open banking service. That’s a service that is enabled or made better or empowered by open banking. And so what we focus on really, it’s much more than just compliance, but compliance is typically the first bit. We focus on providing interface or open API technology that sits on top of a bank’s existing infrastructure typically and enables the third parties to access the bank’s data, the bank accounts on behalf of the customer, but to do it in a way that’s totally secure, that is aligned to the regulations. And typically, the way that a firm proves that they are following the regulations is typically by following a standard. So the regulations normally come first. And then on top of that, you have a standard that says, OK, here’s the regulations say, here’s what you have to do. The standard says, here’s how you do it. And what our software does is it enables banks. We work on that side of things, banks to provide their API interface that works in a very standard based secure manner. But it’s much more than just compliance. It helps banks, first of all, meet their requirements for compliance, i.e. it helps them implement and continue to support standard that is defined in a very structured way. But it also enables the banks to use this open banking channel as a commercial channel to drive new kind of partnerships and revenue through partnering with third parties.
Huw Davie: And there’s actually there’s loads of really difficult stuff banks are having to deal with to get this right. So there is a regulatory lens, but technically, it’s really difficult. Chris mentioned standards. There are already well over 20 different open banking standards that have emerged around the world. So if you’re a multinational bank, you might have to deal with lots of different ones of these. So we help support all of those different standards that emerge around the world so that you don’t have to basically rebuild for every way you operate. But it also creates a lot of banks having all these third parties that are providing these great user experiences are connecting to the APIs that the banks we’re helping the banks expose. The banks have got to deal with all these third parties and make sure they are who they say they are. They’re allowed to do what they’re asking to do. So there’s a whole load of security considerations. And then another piece, this is all based around really explicit consent from the customer. So again, back to that original example, it’s us as a company giving consent to our accounting platform to access information from a specific account. So to do this, well, banks have to deal with this kind of new model of very, very explicit consent. What can I access from what account on what terms? Is it a one off payment or is it an ongoing relationship? Is it one off access to a particular bit of information or is it ongoing access to all of my account information? So all of those, the hard things, dealing with the standards and the security model and handling the consent, that’s the stuff that we saw how difficult banks were finding it. And many of the biggest banks all set out to say, well, we can build this ourselves. We’ve got lots of teams building APIs. We’ll just do this ourselves. And I think they quickly realized this was a very different world than internal APIs. So delivering these open APIs, open to the outside ecosystem that have to have all of these capabilities and meet the standards and deal with consent was really hard. So that’s why we set out to build Ozone API. And it’s all that hard stuff that we solve on behalf of our customers.
Carmen Cracknell: Interesting. And the UK has been described as the best environment for open banking, although it has been recently criticized. I read recently Open Banking Excellence saying that the UK government needed to take steps to stay ahead. Why is the environment in the UK so good and can it be improved?
Chris Michael: Yeah, I think the environment in the UK is probably good because it was the first market to adopt this kind of new model of open banking. I mean, open banking as a concept has been around for probably 20 years. It’s just the difference in the UK and in Europe has been having a regulation that had some form of mandate for banks to implement stuff and also having a standard that sets out the security model, the data model, et cetera. So it works better and more securely. And that was the difference in the UK. It’s just the UK started first. I think was the first thing. The second thing is that we had two regulators and two regulations working in parallel. We had the CMA with the CMA order, which mandated the CMA-9 implemented a standard that myself, Freddie and Huw were involved in creating and implementing. Whereas even in Europe, there were 6,000 banks in Europe that there wasn’t a defined standard or a mandated standard. There are a number of standards across Europe, but none of them were mandated. So in the UK, the CMA actually required the largest banks in the UK to follow this standard that we created. So that was an extra mandate on top of the FCA’s mandate, which was aligned to all the other regulators in Europe for PSD2 or the second payment service directive. So you had these two things, which created, I suppose, an additional set of requirements on the banks to do things a bit better. So that was the first thing. I think because it’s been going a bit longer, it’s also than Europe and other markets, there’s been time to iron out some of the problems or kinks that we saw when open banking first started. You can break those down into technical challenges. So this paradigm of open banking and open APIs is a relatively new one. There wasn’t much established technology around. So at the start, the big banks were trying to build this themselves, and they spent a lot of time and money doing it. And it just took time to iron those out, whereas other markets have still copied some of the mistakes of the UK.
I think also what started to happen is the banks have started to realize that open banking isn’t really just a compliance exercise. And that’s actually one of the most important points here, and one of the biggest friction points is when open banking started in the UK, the banks, almost all of them implemented it because it was a compliance exercise because they were told to do it. I think a lot of people saw the value in it, but they couldn’t quantify the value. And so what they did to start with is they cut corners. They potentially made the wrong technology choices in some cases. But we were doing it for the first time, but what started to happen now is that because the UK was the first market to go, we’ve started to see some of the benefits, some of the use cases earlier, and some of the banks now are starting to look at this with a different mindset that this isn’t just a compliance exercise. Open banking is a commercial imperative because it enables banks to partner with fintechs to offer new services, get new revenue from customers. And so I think that kind of just being a bit ahead of the curve has been why I suppose it’s worked well, started to work well, and because we’ve got this tightly defined standard in the UK. So there’s a higher bar than potentially in Europe. But it’s not just technology. It’s things like the user experience as well. There’s been a lot of effort in the UK into building what we call a set of customer experience guidelines that put a lot of additional requirements around making sure the user experience works well. So for example, you can authorize access to your account using your mobile banking app, which creates a much easier journey, customer journey, that means that customers can do this more quickly with less friction. They don’t have to remember additional passwords. They can just use their banking apps to authorize access. And that’s been hugely significant in terms of conversion rates and adoption of open banking in the UK. But I don’t, you know, whilst the UK has been ahead, I think there is a very real risk that other markets are starting to overtake the UK now in terms of what they’re doing.
Huw Davie: I don’t think it’s a risk. I think it’s a reality. So UK had a great start for all of the reasons Chris said. But I mean, we’re working with banks and central banks around the world to help them do this. And there are other markets that are now moving better and faster. We take Brazil, for example, there’s a much, much broader scope of open finance that’s being implemented in shorter timescales, building on all of the great standards work that was done in the UK, but driving the standards, ensuring that all of the banks have implemented them consistently well. And with some really strong payment capabilities, we’re seeing Brazil, it’s later in the journey, but is already overtaking the UK on a number of counts. I don’t think any market has got it absolutely perfect yet. I think every market implementation we see, there are some good builds on kind of the last best version, but there’s still things that again, the next market can do better. So UK had a great start. I think we’re in danger of stumbling and stuttering a bit too much though, as politics and policy slows everything down.
Carmen Cracknell: Yeah, Brazil comes up a lot in fintech discussions. Is it ahead of the game because of the availability of tech talent there, or is it more to do with regulation, like you say?
Huw Davie: So I actually think a lot of it has to come down to the central bank had a bold vision and drove it really hard. So we’re seeing this in a few different markets. Again, we’re quite close to helping a number of the banks and players implement in Saudi Arabia at the moment. Again, there’s a really, really clear vision around how open finance can help transform the economy and society. It’s not starting from the position of this is a compliance project or a penalty. This is a transformational force for the whole economy and society. It tends to change the outlook and the approach from the very beginning. So in Brazil, the central bank, I remember meeting them the week before the UK went into lockdown with COVID.
The open banking regulation was coming, but I sort of said to them, I assume now with this global pandemic, that’s going to slow everything down. They said, absolutely, no way. We’re going to drive this. It makes it more important. They did. They’ve created a really broad open finance scope. They created some very defined time scales and they drove the industry hard to implement those. As I say, it’s not perfect. There’s still a lot of the innovation to come in in Brazil, but it was a great example of a clear vision being driven hard. That’s created a catalyst for all the innovation to come. Again, we’ve seen Australia with the consumer data, right? That’s a broad scope. Again, it’s putting in place this secure data sharing infrastructure, but across multiple industries, not just banking. So, phase is looking at a broader finance, but the energy and utilities industries. There’s a lot of good that can come to economies and societies doing this really well. It’s effectively, it’s a foundation or a platform for innovation. Exactly what that’ll look like 10, 15 years down the line, who knows? But you get that secure consent-based data sharing economy in place and it’s going to drive a huge amount of innovation and acceleration in markets and societies.
Chris Michael: I think that in Brazil, the regulator has got this much bigger remit, not only to extend into these other parts of open finance and you mentioned Australia as well, but the other area where they’ve got a much bigger remit is around making sure the banks do implement the standard very precisely. There’s a very strong requirement for certification, conformance certification. So, the banks have to test things in a certain way, and prove to the regulator on a regular basis that things are working properly. The standard and the requirements for certification are continually adapting and the regulator has got this very firm remit to make sure stuff is technically working properly at all times, whereas that isn’t really the case in the UK and Europe, at least in the UK, as I mentioned before, we’ve got two regulators, so there is a bit more oversight. But the other thing that I think is key in Brazil, that’s a key point of difference is from the word go, the third parties or the fintechs are actually the other banks. So, there is a huge interest in banks implementing open banking well because not only are they providing APIs, they are consuming the APIs of other banks and the whole kind of construct of open banking has been designed to enable that. So, that’s another significant point of difference from what we’ve seen in other markets. I mean, we’ve seen bits of it in the UK and increasingly now in the UK, some of the biggest payments initiation service providers are some of the banks, for example, NatWest and American Express, well, not a bank, but they’re in scope of banking of payment initiation service providers in the UK. But in Brazil, this is kind of pretty much the paradigm. I think one of the things that still hasn’t happened yet in Brazil, though, is that they haven’t really opened up the kind of regulations and the landscape for other fintechs to come into the market. So, whilst there’s a lot of good stuff there, there are still some challenges in Brazil around the lack of access for fintechs for smaller players.
Carmen Cracknell: Interesting. It’ll be interesting to see how things develop in different markets. One of your predictions recently was that open banking will evolve new capabilities. What do you mean by that?
Huw Davie: Yeah, I mean, we’re starting to see this already. So, it started off in a number of markets where we had access to basic account information and making basic payments. That creates a really good foundation and a platform, but there are a few areas where we expect it to continue to evolve significantly. So,
financial services is often about money movement. So, having more flexible options for embedding payments in different journeys becomes really important. We’re seeing this already. So, in the UK, the biggest banks have now been implementing something called variable recurring payments. The ability to have ongoing payment consent so that you can really embed rules-based payments in experiences, whether that’s frictionless e-commerce payments or whether that’s setting up regular supplier payments or bill payments. Going beyond simple one-off payments to have much more intelligent rules-based ongoing payments is one area. We’re already seeing it evolving and some of the big banks in the UK like NatWest as Chris mentioned, are now driving that on a commercial basis and going beyond the scope of the initial regulation, which is great. Another area is all that information that can be made available, can be enriched and turned into stuff that’s more useful. So, a lot of the scope now is about kind of accessing balance and transactions and things, but banks have spent a huge amount of money validating their customers are who they say they are. They’ve got great capabilities around knowing the identity of their customers. So, starting to make services and APIs available that help their customers onboard to other things in a much more frictionless way because the bank knows they are genuinely who they say they are. They live where they say they live, all of these sorts of things. And then the other thing, so as financial services gets ever more embedded in different digital environments, marketplaces, and loyalty platforms, retailers, it’s really important that banks can allow their products and services to be consumed there. So again, back to the very start of this conversation, banking historically, you had to turn up at your bank to do anything. So, if you’re in, again, go back to our accounting platform. If we were doing something like we’re looking at our cash flow and we want to just easily extend a credit line for a short period of time, just while we’re waiting for an invoice to come in and get paid, you want to do that in a completely frictionless way in the platform. So, if banks start to expose APIs that allow their products and services to get embedded in the places you’re actually going through day to day experiences, whether that’s a person or a business, it makes it much easier for the banks to sell more products, capture more customers, lend more, drive more savings without requiring that person to leave wherever they are and come back to the branch. So, open APIs that allow all of the day to day processes that you do with your bank to be embedded in the place where you’re engaging, whether that’s an accounting platform, whether that’s a retailer, whether you’re booking a holiday, whatever it is. To date, for the last sort of 10, 15 years, this has been the space of fintech. Fintechs have been creating one-off solutions to solve problems outside of banks and branches. This is creating the environment where actually the really big banks that have got the relationships and the capability can expose these sort of services through these secure APIs so they can be embedded where the customer needs them rather than always having to rely on a a different card product or a different fintech to solve a particular problem. So, it’s creating a space where I think everyone can innovate from the very, very biggest banks and financial services companies through to a much easier route to enter for new players, new fintech specialists that might have a particular niche in one challenge like financial inclusion or migrant workers or something like that. So, yeah, the changes will be the breadth of capabilities that can be delivered through these APIs.
Carmen Cracknell: How do you view the relationship between open banking and financial inclusion?
Huw Davie: Well, actually, yeah, sorry, I’ll build on the last point. So, open banking should be a massive enabler and foundation to tackle challenges like financial inclusion. I mean, financial inclusion is really that there are large parts of the population, very large parts in certain markets like in Latin America or in a number of the markets in Africa that are effectively outside of the financial services ecosystem are unable to access credit or get accounts that enable them to make digital payments. Often this is because there’s a perception amongst the banks that the economics don’t work. And quite often the reality is the economics don’t work because you’re funding these big branch networks and all of the costs and things like that. What open banking enables is a couple of things. So, access to digital information, and we all have digital footprints somewhere, can enable lenders to make decisions about us without having to rely on things like a traditional credit bureau. Credit bureau, if you already have lending relationships, is really helpful to tell you how good you are at paying back. If you don’t have lending relationships, it doesn’t tell you a huge amount, but if you can access basic transactional information to show that I do pay my rent, I pay my bills, I can see how much is coming in and going out, that for example can make it easier to give people access to credit that were previously excluded. So, it’s a real tool to enable access to credit where it was hard before. The other piece is it just massively brings down the costs to serve. So, if you’re able to create digital relationships and use digital data out there rather than requiring someone to come into a physical branch, you can really reduce the costs to set up an account and serve a customer. And all of a sudden, the minute that cost to serve comes down, an increasingly large proportion of customers all of a sudden become marginally profitable and you bring far more of the population into the banking mainstream. So, it’s a couple of things. All that information can help people that could never access credit previously access credit, but a much more digital ecosystem just significantly lowers the costs to serve everyone.
Carmen Cracknell: Well, that wraps up my questions. Really interesting discussion. Thank you both so much for taking the time to join me. For anyone who wants to know more about Ozone API, is your website the best place to start?
Huw Davie: Absolutely is, yes. Yeah.
Carmen Cracknell: Fab. Thanks again for joining me.