TrueLayer – The missing puzzle piece in digital banking

More than a decade has passed since the Global Financial Crisis, and many have likened the seemingly decoupling of Wall Street and Main Street of late to the irrational exuberance of the past. Much of the time since then has arguably been focused on cleaning up — making sure that unfounded market optimism will not present its ugly face ever again, through regulations like the Basel III capital and liquidity standards, Dodd-Frank act, and quantitative easing, which impact on the economy is something still hotly debated and challenging to grapple with.

The economic landscape has changed dramatically since then. China, India, and much of Southeast Asia have seen tremendous economic growth, with emerging market and developing economies contributing 59% of global GDP in 2019 vs. 51% in 2008, and projected to grow to 63% in 2023. Technology now connects us all in ways that are unfathomable to generations before and there are many benefits to reap from consumers’ ability to find information (e.g. Google), buy any product (Amazon, Alibaba), or communicate with almost anyone (Facebook, WhatsApp, WeChat) through a device in their pockets. The monolithic relationships between banks, financial institutions, and consumers, especially in Asia, have much to benefit from the pervasiveness of technology in the everyday lives of consumers and the digitization of financial services.

Personal financial assets in the region are projected to reach $69T by 2025, representing approximately three-quarters of the global total

According to management consulting firm McKinsey, Asia has been the world’s largest regional banking market for a decade, generating pre-tax profits in excess of $700B and accounting for 37% of global banking profit pools. Riding on the trend of rising income and the growing middle class, personal financial assets in the region is projected to reach $69T by 2025, representing approximately three-quarters of the global total.

In markets that are relatively well-penetrated and highly banked (e.g. in Singapore, where 98% of citizens have a bank account), there are still many consumer pain points that legacy banks are slow to solve. For retail customers, many continue to face fall-below fees, complex products and application processes, and difficulty with understanding due to lack of comparison and/or reviews on the products. In particular, there are hurdles such as residential status, education, and lack of documentation preventing consumers from having a smooth banking experience. For small-medium-enterprises (SMEs), similar challenges in navigating banking processes and choosing banking products are faced, and they are slapped with many types of bank fees (e.g. POS machine fees, facility fees, account opening fees), do not have a good, if at all present, rewards and loyalty program, and have to often deal with different channels to access services despite already being an individual customer with the bank.

The feasibility of having a great digital banking experience has increased with the advancement of technology, increased regulatory support (e.g. Payment Services Directive – PSD2, Open Banking), open APIs/SDKs, digitized and faster payments systems and wallets, and more accurate identity tools

To address these issues, the formation of a digital bank has been the talk on the street in recent years. On 28 Jun 2019, the Monetary Authority of Singapore (MAS) announced that it will issue up to two digital full banks (DFB) licenses and three digital wholesale banks (DWB) licenses. Later in December 2019, Bank Negara Malaysia issued the Exposure Draft on Licensing Framework for Digital Banks, aiming to issue up to five digital bank licenses, to establish digital banks to conduct either conventional or Islamic banking business in Malaysia.

Hong Kong is a step ahead, with eight digital banking licenses awarded and four already gone live (ZA Bank in Mar, AirStar Bank (Xiaomi) in Jun, WeLab in Aug, Mox in Sep). Arguably, the successful digital banks in Asia are Webank (China) and Kakao Bank (Korea), the former founded by Tencent among other companies, and closely integrated with widely-used messaging app WeChat (微信), and the latter gaining huge popularity in Korea through its delightful and cute designs as well as integration into the country’s most popular messaging app Kakao Talk.

The feasibility of having a great digital banking experience has increased with the advancement of technology, increased regulatory support (e.g. Payment Services Directive – PSD2, Open Banking), open APIs/SDKs, digitized and faster payments systems and wallets, and more accurate identity tools.

Open banking can be the catalyst to which digital banking takes off, and TrueLayer is at the heart of it

The open banking initiative, which was fully operational in 2018 in the U.K., aims to open data access and standardize technical specifications across the finance industry so that consumers and businesses have better access and control over their data. It will allow consumers and businesses to ask their banks to share their data with other banks or companies, which aids with product comparability, and greater ease of signing up for new products.

Taking a global view, Australian customers can now choose to share their banking data with third-party providers, as the Australian Competition and Consumer Commission (ACCC) has overseen the launch of Open Banking under the Consumer Data Right Act. Data which is included in the first phase, from 1 July 2020, includes credit and debit card, deposit, and transaction data, and is mandated for the Big Four banks (CommBank, ANZ, Westpac, NAB). Mortgage and personal loan data will follow on 1 November 2020. Other banks will have to comply over the next 12 months, by July 2021.

Open banking can be the catalyst to which digital banking takes off, and TrueLayer is at the heart of it.

Who are they?

Founded in 2016 by Francesco Simoneschiby and Luca Martinetti, TrueLayer is a SaaS developer platform that aids financial services providers and adjacent companies (e.g. eCommerce) to connect securely with end-consumers’ bank data, verify accounts, and access transactions in real-time, across various banks. This is particularly appealing for fintech companies that tout an ability to bring greater convenience, speed, and actionable/personalized insights and offerings to their customers.

This is done through their three products, Data API, Payments API, and Insights API, which provide a unified interface between multiple financial institutions and third-party applications over a common RESTful API.

Data API

Data API allows a retail consumer to connect their app with any bank that has allowed made such connectivity permissible (e.g. under open banking). As a result, the app can extract financial data directly from the customers’ bank account. This allows the consumer (in this case an app) to have a consolidated view of the end user’s accounts, balances, and access transaction history, as well as to a convenient way to conduct Know-Your-Customer (KYC) and account ownership checks.

The information they can capture include:

• Account-holder information
• Balances
• Transactions
• List accounts
• Credit cards
• Categorization

Payments API

Payments API allows a retail consumer to accept payments directly into their bank account. They can initiate both one-time and recurring payments.

TrueLayer explains how this works in four steps:

1. Initiate a payment: payment details are sent to TrueLayer, which contacts the bank to initiate a payment
2. Authorize payment: the user authenticates at their bank and approves the transaction
3. Monitor transaction: the transaction progress is checked with an API call
4. Receive money: Once the bank has completed the payment, the funds can be accessed

Insights API

Insights API allows financial services companies to retrieve actionable insights about the income and spending patterns of their users. Data types include projected quantum, monthly averages, sources, types, and, for spending, the transaction, and merchant classifications.

This seems to be a ‘beefed-up’ version of the data and payment APIs, where TrueLayer value-adds to the raw data by making analysis on the data and producing insights that are directly fed to their customers.

They claim that they now account for more than half of all Open Banking traffic in the U.K. In addition, between March and July 2020, the use of Payment Initiation, enabled by Payments API, grew 832%, as consumers paid for goods and services online during the lockdown.

What is their value proposition?

Through each of their products, they aim to allow their customers (i.e. financial services companies) the ability to offer more insightful, personalized, and relevant products to end customers.

Data API

Industry Pain Point	How TrueLayer Addresses
Customers have multiple banking and card relationships, and want a consolidated view of their finances	TrueLayer’s solution is a unified platform to access data from the largest bank and neobanks in Europe, allowing the consolidation of finances onto a singular view (i.e. account aggregation)
One-size fits all financial products means that you do not easily or necessarily get what you need and end up paying more than you should	Financial services companies will have a more holistic view of end users and hence better customize their solutions for them
Financial transactions are frequently posted with delay	There will be real-time access to transactions, identity, and balance data, which gives end users greater convenience and assurance of security and better oversight of their finances
Large merchants need to pay huge convenience (transaction and processing) fees to payment services providers	These merchants (e.g. retailers), can bypass traditional payment services providers (e.g. Mastercard, Visa) and save on fees, also bringing a more streamlined buying experience for their customers

The above pain points that TrueLayer’s products addresses bring to financial services providers will, in turn, allow them to bring greater value to the end customer through a fly-wheel effect. More timely and useful recommendations result in greater relevance to the customer’s lives, hence greater stickiness through higher app engagement, which in turn provides more opportunity to up-and-cross sell, improving the number of data points and behavioral observations that can be collated about the customer, improving the insights that can be generated by these financial services companies and, finally, improve on their servicing and product definition algorithm.

Beyond the above benefits, there can also be better risk management, as an all-in-one app on an API platform such as TrueLayer reduces the need for screen scraping (i.e. making use of a website to extract data through the user’s stored credentials, that has to be stored unencrypted) and so reduces the risk of data breach, increasing security.

Some of the partners that TrueLayer has are, for account aggregation, Chip (automatic savings), Revolut (Neobank / multi-functional financial app), and Coconut (accounting for self-employed). For account verification, TrueLayer is partnering Plum (Savings AI assistant), Revolut, ANNA Money (business banking / invoice), and Credit Ladder (credit score building through rent).

Payments API

By extending the ability to easily accept payments into their bank accounts, TrueLayer can serve customers across various industries and unlock diverse use cases in them, driven by reduced fees for payment transactions, fewer chargebacks, and lower fraud risk.

• Financial services: embed transfers into the user experience, across use cases such as: remittance, account top up, crypto, P2P, e-wallets, payment gateways
• Platforms: send and receive payments with lower transaction fees, fewer chargebacks and lower fraud risk
• Gaming: reduce barriers to onboarding by simplifying the account load process and reducing risk of fraud through stronger user authentication and easier KYC/AML compliance from bank verification
• eCommerce: simpler, cheaper alternative to card payments
• Real estate: make the mortgage collection process more seamless and faster
• Travel: quicker receipt of payments (vs. delayed as is traditionally the case with travel packages, reservations etc.)
• Point-of-sale / Retail: cheaper and more secure payment option

One use case of the Payments API, highlighted by TrueLayer, is the ability to enable account (e.g. e-wallet) top-ups. Financial services companies can enable users to fund accounts directly, without leaving the app. In facilitating direct account top-ups, there will be increased conversion rates due to greater convenience, as well as lower costs from the elimination of card fees which the financial services companies have to pay and can be substantial if the user chooses, say, a credit card as a top-up method (estimated ~2% of transaction volume). Moreover, direct transfer between accounts implies that the transaction will be instantaneous. This was demonstrated in the case of its partnership with Stake, a brokerage that aims to democratize access to financial markets (in particular the U.S. stock exchange). Through Payments API, customers can top-up and access funds instantly without having to enter card or bank account details.

Insights API

The Insights API can be convenient for smaller companies that do not have the necessary resources to build their own, or buy, a dedicated analytics engine, and circumvents the hassle of manual work. It can also be useful for companies that would find useful specific insights that are provided by TrueLayer. Examples of use cases for insights are, detecting the trend and types of incomes, account activity (e.g. transactions, debit, bill payments) for fraud detection, as well as for credit analysis (e.g. days with a negative balance, variation of balance, average amount of loan undertaken/paid). This can then be used for customer segmentation and behavioral analysis for better targeting.

However, without understanding the whole range of insights that can be provided and the level of customizability required, it could potentially be restrictive in terms of the relevance of such insights to the company’s use cases, with the positive being a likely increase in speed to market, from leveraging TrueLayer’s proprietary analytics engine.

Competitive landscape

Some companies that provide similar products or aim to address similar painpoints are: Bud (U.K.), Yapily (U.K.), Railsbank (U.K.), Tink (EUR), Nordigen (EUR), Belvo (LatAm), and Plaid (U.S.)

Plaid, which was announced to be acquired by Visa in a $5.3B deal, develops financial APIs that facilitate connectivity between financial services providers and developers, in turn enabling end-consumers to benefit from being able to conveniently share their financial information with apps and services such as Acorns, Betterment, Chime, TransferWise and Venmo. An end-consumer can control, through Plaid, with which financial institution or apps, and what financial data is being shared. While it is dominant in the U.S., it expanded into the U.K. and Europe in mid 2019.

$US unless otherwise stated	TrueLayer	Tink	Nordigen
Founded	2016	2012	2016
HQ	London (U.K.)	Stockholm (Sweden)	Riga (Latvia)
Overview	SaaS developer platform that aids financial services companies and adjacent companies to access bank APIs and to securely share customers banking details	FSA-regulated open banking platform that allows financial institutions to access financial data through one API integration	SaaS self-service dashboard for integration with API to access end user’s financial data
Products	Data API Payments API Insights API	Account aggregation (3,400+ institutions e.g. PayPal, Klarna, NatWest, ABN AMRO) Data enrichment Payment initiation (transfers, checkout, invoices) Personal finance management	Transaction categorization Account aggregation KYC Insights across: income, loans, credit scoring, marketing, risk, simple score (customer’s liabilities settling likelihood)
Others	Is a PSD2 compliant platform and allows customers to operate under their license as an agent ISO 27001 certified	Is a PSD2 compliant platform, ready-made authentication flows allows customers to operate under their license Has full-service enterprise offering and also self-serve platform for developers ISO 27001 certified	Engine is calibrated for multiple countries (19) in Europe, Australia, Americas, Asia, and Africa ISO 27001 certified and regulated by GDPR (EU data regulation)
Notable investors	Tencent, Temasek, Connect, Northzone, Anthemis Group	Dawn Capital, HMI Capital, Insight Partners, PayPal, Poste Italiane, ABN AMRO Ventures, BNP Paribas (Opera Tech Ventures)	Change Ventures, Inventure, Seedcamp
Sample clients	Revolut (banking and financial services), CreditLadder (Rent reporting, U.K.), Stake (Brokerage, AU)	AMB AMRO, SEB (Nordic bank), Caixa Geral de Depósitos (Bank, Portugal), Nordea (Nordic financial services group), Klarna (Buy-now-pay-later, EUR/U.S.)	Tink (Digibank, EUR), Cheq (Payday lending, AU), TF Bank (Digibank, EUR)

What is the team and who are the investors?

TrueLayer was founded in 2016 by Francesco Simoneschi (CEO) and Luca Martinetti.

• Francesco Simoneschi (Co-founder, CEO) – Previously VP Strategy at FOVE (VR Headset) and product/tech lead at Upsight (web and mobile marketing platform)
• Luca Martinetti (Co-founder, CTO) – Previously Lead Data Engineer at Plaid and multiple engineering roles in SaaS / big data analytics
• Max von Bahr Emilson (Chief Revenue Officer) – Previously Chief Commercial Officer at Wiraya (Managed Mobile Customer Activation software) and Sales/Partnerships at Klarna (Buy now pay later)
• Marie Steinthaler (VP, Global GTM) – Previously Head of New Products at Zopa (U.K. based P2P lending company) and various product/growth/design roles in FinTech
• Vincenzo (Vince) Mitolo (Head of Growth) – Previously BD Manager at First Republic Bank and BD/sales roles at BNP Paribas /AnsaldoBreda
• Michael Vroobel (Head of Global Expansion) – Previously VP Operations at MarketFinance (Business financing) with eCommerce and strategy experience

They most recently raised $25M in continuation of their Series C round, from investors including Temasek, Anthemis, Connect Ventures, and Northzone in September 2019, making a total of $72M raised. In June 2019, they raised $35M as part of their Series C round, which was participated by existing investors and joined by Tencent and Temasek. In addition, TrueLayer also counts Tencent as an investor.

What next for the company?

Like Plaid, they can continue developing value-added services such as additional key insights to the data access that they provide. Insights API looks to be a step in that direction and can be a natural upsell to existing customers. Developing proprietary methods for uncovering insights will also be differentiating for the company, versus purely being a data access provider, which is a function that risks being commoditized.

Some other adjacent products that TrueLayer can consider delving into are, for example, white-label card issuance (e.g. Galileo and Solarisbank), digital banking “BaaS” (e.g. Solarisbank, Bankable, BBVA, nexus (Standard Chartered)), all of which can be of incremental value to a financial services company.

In the U.K. / Europe, as compared to the U.S., open banking regulations have encouraged greater collaboration between banks through data openness, which can ultimately benefit the end-consumer. However, some impediments are the adaptability of the existing technology infrastructure to support such efforts (e.g. the quality of APIs, compatibility of legacy infrastructure), as well as the internal procedures that need to be cleared, which can take time. To this end, TrueLayer can serve as an active leader in this field, partnering banks to consult and assist with the transformation, which can be beneficial to both parties and the industry.

Additionally, it could, on top of these enterprise/B2B services, launch its own direct-to-consumer/B2C services. With the foundation already readily available, through its APIs, establishing a greater presence downstream might make sense, as it can take its time to observe and learn from existing market participants. One such company that serves both retail and enterprises is Moneytree (JP/AUS).

In conclusion…

The financial services and banking industries have seen tremendous developments over recent years, and increased financial inclusion through innovative technology-enabled financial products and delivery methods have become a global phenomenon. TrueLayer’s proposition can be propelled by the acceleration of technology usage due to COVID-19 increasing the desire to avoid in-person contact as much as possible, and financial regulators across multiple countries stepping up to digitize the banking industry. In the U.K. and increasingly other parts of the world, they are riding on the wave of Open Banking and PSD2.

This is not without challenges, as regulators are key stakeholders in an industry that has, especially in recent decades, been in the headlines for the wrong reasons, and hence is now rightfully subject to a high level of scrutiny. While on the one hand the democratization of access to financial services is commonly lauded, and forward-thinking policymakers have acknowledged and encouraged innovation, there have to be clear boundaries set to contain and limit any potential large risks that could befall the uninitiated. Predatory practices by institutes solely focused on driving up profits at all costs have to be stopped. Therefore, it would, rightfully, take ample deliberation before bills are passed and laws enacted to facilitate more open banking and access to financial data, which implies potentially a long drawn process for change. What helps greatly in this case, is the precedent of the U.K., many countries in the EU already working to replicate these standards, and Australia being one of the leading countries to adopt this. Notably, in Asia, Singapore, Hong Kong, and the Philippines are more progressive in their approach and could well be the first to promote it in the region.

Further, the adoption of technology in financial services is relatively nascent and is still very susceptible to hiccups. An example comes from India, home to the UPI (Unified Payments Interface, an instant real-time payment system developed by National Payments Corporation of India facilitating inter-bank transactions), which is widely touted to put India at the forefront of financial technology adoption, the top 10 Indian banks recorded 3% failed UPI transactions which leads to piling up of credit reversal dues for banks.

In all, increased openness of API can benefit the end-consumer through greater personalization of products, convenience in access to financial services and personal financial information and hence an improved view of their financial standing to make better informed financial decisions, but also financial services companies, by helping them to better maintain customer relationship, expand the diversity of services they can provide, reduce the cost of serving customers and even increased revenue through APIs and API-related applications. They are incentivized to improve on their technology infrastructure, promote innovation and speed of project execution in the company, to put the company in better standing for the future.

TrueLayer is well-poised to take advantage of the future trends in the finance industry and it will be exciting to see where the future takes them, especially in Asia, as regulators warm up to a greater degree of openness of banking, and as people increase in financial literacy and technology adoption.

Sources

• How Asia is reinventing banking for the digital age
• Monday Brief: Virtual banks in Asia
• Who Will Be the Ultimate Winner of Asia Pacific’s Virtual Banking Race?
• The Future Of Banking: Virtual Banks Chase the Dream in Asia-Pacific
• Digital Banks get real in Singapore – Crafting the winning strategy (PwC)
• What are open banking APIs, and what are they good for?
• Open Banking: A platform-based business approach that came to stay (Deloitte)
• Here are the UK’s leading open banking providers
• Open Banking – U.K.