Analysis of the deal: Barclays and Flux on PSD2 opportunities and innovation in banking

By David Beach | 7 December 2017

Bobsguide invited Flux CEO, Matty Cusden-Ross and VP of Barclays Open Innovation, Richard Thompson, to sit around the table to discuss their new commercial partnership. Flux, the digital receipt start-up, talks adjusting to legacy life and Barclays discusses its approach to PSD2, GDPR and whether big banks are really doing enough in the name of innovation. 

More importantly, this roundtable sheds light on how two very different organizations can successfully work together.


What’s the Flux story?

Matty Cusden-Ross (Flux): The three founders of Flux, myself included, were the first employees at Revolut, we built its back end to handle over $4.5bn of transactions, and we grew its user base from 0 to 400,000 customers in 18 months.

We broke off from Revolut to do our own thing because we found it absolutely insane that you could go from using a 21st century technology, contactless payments, to the 100BC technology of paper receipts, especially when the value of data stored on receipts is massive to everyone along the chain. For consumers, that data brings unparalleled insight into their spending and improved personalisation.

This improved personalisation is great for retailers because it allows them to increase sales, and increased sales is great for banks because it means an increase in card usage. So the benefits are clear for everyone. It’s not a question of if it will become ubiquitous, but how. We can only see this happening if the experience fits seamlessly with the customer’s behaviour, and the best way to do that is to link that rich receipt data to their bank card. The customer can walk into a shop, buy something with their card, and that rich data is captured at point of purchase.

The onboarding process is simple, and consists of the consumer giving us consent, compliant with GDPR, via their mobile banking app. From then on, whenever they use their card at a participating retailer, they’ll get a detailed digital receipt. The detail that we provide in the receipt is what we call ‘level 3’ data, including the address, the VAT number, the product, the quantity etc. Leveraging this type of data gives us great insight into consumer behaviour, which retailers, banks and consumers can all benefit from.

If we wound the clocks back to 2015, would Barclays really have been partnering with a fintech start-up?

Richard Thompson (Barclays): I sit within Barclays’ Open Innovation team and our mantra is that we look to start-ups to help us move forward because we recognise that we’re not nimble enough on our own to change in line with the speed of technology and consumer demand. The reason we’re not able to innovate as quickly on our own is largely down to our legacy infrastructure; it takes a lot of time and effort to move ideas forward, all the more difficult when doing it at speed. A lot of that comes from our scale and, as a retail, corporate and investment bank, we have to be very careful about what we deploy in order to maintain the level of trust that our customers have come to expect. That’s why PSD2 and open banking are extremely interesting for us, both as a challenge and an opportunity.

For that reason, we established Rise here in London in order to anchor ourselves in the fintech ecosystem. We have other Rise ecosystems in New York, Manchester, Tel Aviv, Mumbai, Vilnius and Cape Town; we are curating and providing support to those start-up communities who, in turn, can help us drive and improve our products and propositions.

When we look at generating value from a Barclays perspective, there are three elements. The traditional banking lens: does it improve our support of high growth businesses?; the investment lens: does it align with our appetite for strategic equity investment?; and finally, the innovation lens: can we partner successfully with the Rise community to solve immediate problems or create entirely new business models? Those three elements have been the cornerstone of the Barclays Open Innovation strategy for the last four years.

We know that new players will enter the market looking to disrupt and disintermediate banks, and initially that seemed like a scary prospect. Scary, because in the early days we didn’t necessarily understand these new technologies, so our finger wasn’t quite on the pulse. Now, however, the market narrative is a lot more collaborative and fintechs are now looking to leverage the scale and trust of a brand like Barclays.

So to answer the question, in 2015 there certainly would have been interest, but the ability to execute would have been a challenge. The past few years have been a constant learning period for us.

So the trade-off is that Flux gets to scale by leveraging Barclays’ consumerbase and Barclaycard’s merchant connections, and Barclays innovates off the back of that?

Flux: Sure.

Barclays: I’d agree with that. What Barclays is bringing to the table is scale and trust, and Flux brings the new business model and innovative technology, which is really exciting.

What do you both think PSD2 will bring to the future of banking?

Flux: I think it’s an incredible step forward to see how legacy banks are being nudged, shall we say, into how to deliver the most value to their customers and putting the customer at the focal point of their offers. The CMA9 is doing a lot of work to get ready for PSD2, and I think the bar will be set reasonably low initially just to ensure we can get things moving in the right direction.

Come January 13th, is everything going to change? Probably not immediately, but that may be me being a bit cautious about it. I would love that immediate change, but I just know that this is massive and therefore it’ll take a few iterations toing and froing with guidelines and protocols before we see full effect.

As for the third parties, whilst I think we’ve seen many who’ve provided fantastic customer services, the data has been relatively poor. Once they can work with banks to access richer transaction data, the ability for third parties to leverage that becomes much easier. I think we’ll see a gradual shift in these third parties coming to the fore of financial services but it will accelerate and accelerate until it’s the dominant way people interact with their finances.

Barclays: It’s certainly a very powerful piece of legislation in terms of what it wants to achieve. Personally, speaking from an innovation and consumer perspective, PSD2 is giving value back to the customer.

From a banking perspective, we expect it to bring about increased competition, and we believe that the winners will be those who can really listen to their customers and put them right at the heart of everything they do. We see Open Banking as an opportunity – we’re already seeing some of the early use cases, but we’ll also see new business models emerge which find innovative ways to monetise the data that’s available and ultimately offer a better experience for the customer.

Flux: PSD2 comes with uncertainty; as a startup we need to be ready and receptive for what’s to come, and I think we’re well positioned to do that. We’ve built Flux to be at the forefront of PSD2 and how we are and will be able to work with institutions. We’re dynamic and can adapt to that uncertainty including with GDPR.

This is all very serious stuff. I think start-ups in other sectors can get away with not being so serious so quickly. But applying for our FCA licenses and making sure that our business conduct was at a standard that would satisfy Barclays really made us grow up quickly. For us, it’s been an incredibly useful exercise -  we’ve been going through our privacy policies to make sure they’re GDPR compliant with Ernst & Young.

Although it’s forced us to develop very quickly, it’s been critical in positioning ourselves as best in class with the new regulations coming out.

Barclays: Flux’s professionalism is what makes it a pleasure to work with them. As I was saying before, part of the Rise platform is about making startups enterprise ready, and in fintech, that’s harder with the amount of regulation. It helps us have honest and open conversations where we can set out the regulatory challenges and solve them together.

Flux: There’s a huge amount of uncertainty over GDPR from retailers who’ve been collecting email addresses over the last decade and managing ongoing consent will be hard to do. Flux has set ourselves up to be GDPR proof, in that we collect and glean the information from the data in a way that’s fully compliant.

Have banks done enough over the years towards innovation?

Barclays: The honest answer is that there’s more that they could have done. At Barclays, we’ve made some heavy investments in the Rise community to be a proactive part of innovation and banking change.

The big banks all know that fintech is here to stay, so the question becomes how to execute and how to engage. As a bank we’ve done a lot of work on our onboarding processes, which were originally designed to onboard large corporations. If we’d placed that same due diligence on a small startup, they would quickly have run out of capital before the end of the procurement process, so we’ve worked to streamline that process. Is there more that can still be done? Of course, but we’ve really taken some great steps there.

The quickest deal we’ve done from the start-up joining our accelerator programme to signing a contract was 60 days, which is very quick for a bank. Part of that comes from the mindset shift within the bank from the innovation culture; as our role as the open innovation team is to drive that home.

The old mindset of believing that we could build innovation ourselves and take as long as we like is falling away. If we’re constantly trying to fix what’s there, you’re going to miss the opportunities that companies like Flux are able to see and execute a lot quicker than us. By partnering, that’s how Barclays stays relevant to the consumer.

Have you had to reconcile any cultural differences between Flux and Barclays?

Flux: I think the biggest difference between a large institution and a start-up is the process around it, particularly with the sheer volume of employees and products. If we governed Barclays the way we govern ourselves at Flux, it would be chaotic. We’re used to getting stuff done incredibly efficiently and effectively. It’s just a different process between scaling up and running a startup and managing the massive behemoth that is a bank.

The intersections of those processes have been particularly challenging, more when we’ve been dealing with other large banks. What Barclays is doing with Rise is to cross that chasm and build a gateway into the institution. Rich and the open innovation team exemplify this. He understands the bank and how it works in a way that we don’t. Richard’s like our Virgil, he’s our guide through Barclays.

Barclays: We should probably finish the interview on that note! I think what’s been interesting has been exposing my colleagues in Canary Wharf to this kind of environment and seeing the mindshift. You get those clichéd stories of bankers taking off their ties and feeling more rejuvenated in this atmosphere. But the reality goes more to hammer home the point that innovation should be a part of anyone’s job - I can disrupt myself, improve and move the needle - and that mindshift is critical to Barclays.

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