How U.K.'s Starling is diving into Europe's crowded API market

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Starling Bank, a U.K.-based digital-only bank, is among the latest European banks offering the benefit of its full banking license and its technology to companies that want to offer white-labeled banking products and debit or credit cards but don’t want to invest in a banking license or technology.

In Europe, banks which provide banking-as-a-platform include Germany’s SolarisBank; Poland’s mBank; and the Fidor Solutions arm of Fidor Bank, which since 2016 has belonged to French bank BPCE. Fidor’s white-label technology platform underlies Spanish telco Telefónica's O2 Banking mobile-only bank account. Fintechs such as U.S. payments processor Stripe similarly provide an API for credit card issuance, through Stripe’s banking partners, to non-banks.

Under the EU’s PSD2 regulations, EU banks have been required since January 2018 to have open APIs in place, or allow customers to access their data in some other way, if they haven’t installed open APIs.

“That is why firms like U.K-based fintech TrueLayer developed a platform that enables third-party companies to access bank data in different ways,” said Starling CEO Anne Boden. “In the U.K., following PSD2, the Competition and Markets Authority wanted to make banks more competitive, so it mandated that, under Open Banking, the nine biggest banks and building societies had to implement APIs by January 2018. These nine FIs have now opened up their interfaces so that nonbanks can access a bank customer’s data on their behalf.”

Open API integration is still optional for smaller U.K. banks and building societies. However, PSD2 states that by September 2019, all banks in the EU must offer only API-based access.

“The U.K. banking industry has been slow to adopt open APIs, which is a gift for Starling,” said Boden, who founded Starling in 2014 and was previously the COO of Allied Irish Banks (AIB Group), one of Ireland’s largest banks.

Starling, named after the bird and referring to the bird’s friendly nature, was granted a banking license by the Bank of England in July 2016. Starling launched its mobile-only retail current accounts in May 2017 for iOS and Android phones, and in March 2018 launched its digital-only business bank account.

“Because we are a fully licensed bank, we have been providing our APIs to some big banks which can’t develop their own APIs," Boden said. "Some people say that the smaller banks are using the bigger banks but, for us, it’s the other way around. We’re providing banking and payments services through our API solutions to bigger banks.”

Starling may be among the latest to offer a banking-as-a-platform model, but the trend has been building in the EU for years.

“Fidor has been providing its bank-as-a-service offering since 2015 with the O2 Banking account launched for Telefónica,” said Nadia Benaissa, chief marketing officer at Fidor Solutions. “This business model is the reason why we carved out the IT department of Fidor Bank to become a separate entity, Fidor Solutions, so we could serve our own bank and partners that want to co-innovate.”

Fidor runs the bank for O2, handling its entire business processes including customer support, risk and compliance, onboarding, etc., through Fidor’s EU banking license. “O2 takes care of the marketing. and we co-innovate when it comes to products,” Benaissa said.

Fidor provides different flavors of 'as-a-service' offerings.

“For example, we offer crypto-as-a-service with Kraken and bitcoin.de,” Benaissa said. “Credit-as-a-service was launched in December 2017, which means that an e-commerce/loan comparison company could provide loans to their customers by plugging into Fidor Bank's APIs. We offer payments-as-a-service, for example for Van Lanschot Bank in the Netherlands.”

Fidor also offers marketplace-as-a-service. “It is a three-sided marketplace where banks, fintechs and customers can connect," Benaissa said.

A market for APIs
The first publicly announced client for Starling’s banking-as-a-platform service is online savings marketplace Raisin UK.

Raisin will use Starling’s APIs and banking license to open savings accounts for each customer, collect their deposits and place them with its network of partner banks that participate in its marketplace. The strategic partnership will eventually also give Starling customers access to Raisin UK partner bank offers through Starling’s own Marketplace.

“Our new partnership with Starling Bank is very exciting for us,” said Nebula Norman, head of marketing at Raisin UK. “From September 2018, all new customers of Raisin UK will benefit from Starling Bank’s state-of-the-art account opening and transaction processing API infrastructure. This also means that we will be able to offer consumers a broader range of savings products.”

Boden noted that it is very hard for a big bank to upgrade legacy systems to open banking, whereas Starling was designed and developed with PSD2 compliance.

As a direct member of the U.K.’s Faster Payments scheme, Starling is able to provide its consumer and corporate clients with real-time payments.

“We compete with big banks like Barclays and HSBC to provide outgoing payment services to businesses, fintechs, organizations and government departments,” said Boden. “For example, we handle payments of pensions for the U.K.’s Department of Work and Pensions.”

For Starling’s banking-as-a-platform offering, the bank offers API-based current accounts complete with debit cards or credit cards and savings products to non-banks that want to white-label these products.

In the late 1990s, a number of big U.K. supermarket chains partnered with banks such as Royal Bank of Scotland to launch bank accounts and credit cards.

“Nowadays, with APIs, it’s so much easier to integrate a bank with a partner such as a supermarket, as there is no need for complex IT integration,” said Boden. “There’s no complicated on-boarding process or documentation for our banking-as-a-platform service.”

In June 2018, Starling became a strategic partner for Mastercard Send settlement services in the U.K. Starling manages the funds that are to be disbursed before they are pushed to individual accounts via Faster Payments.

Starling is a member of SEPA, STEP2 (a pan-European clearing house) and TARGET (Trans-European Automated Real-time Gross Settlement Express Transfer System) in Europe. It has also has passported its U.K. banking license into Ireland, said Boden, adding that the bank also plans to develop payments acquiring services.

Since 2016, Starling has received £58 million of investment, and is looking for further investment to fund its expansion.

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