The future of South African banking is Open, with Nick Tuttelberg
Open Banking is a proven technology with proven use cases, and in the UK, perhaps its spiritual home, user numbers continue to rocket - there are now more than 6 million active Open Banking customers there. However, some other markets are looking on and wondering what the fuss is about.
This was surprising to me. And it was surprising to today’s guest, Nick Tuttelberg of DirectID. After all, there’s not a business alive today that wouldn’t want better data, and Open Banking provides some unique ways to generate and leverage data. But it seems the concept is still misunderstood in some sectors, so Nick and I take a step back and look at how a market like South Africa could benefit from encouraging Open Banking.
As we mention in our chat, this is the second time I have interviewed someone from DirectID, so if you’d like to deeper dive into the company and its mission, you can listen to my chat with its founder, James Varga, in episode 36 of this show: https://www.howtolendmoneytostrangers.show/episodes/episode-36
But you can learn more about DirectID on their (recently redesigned and now looking very lovely) homepage https://www.direct.id/ or via LinkedIn
LinkedIn is also a good place to find Nick if you’d like to start your own Open Banking journey, he’s here: https://www.linkedin.com/in/nicholas-tuttelberg-87bb0628/
You can learn more about myself, Brendan le Grange, on my LinkedIn page (feel free to connect), my action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is at https://confirmu.com/ and on episode 24 of this very show https://www.howtolendmoneytostrangers.show/episodes/episode-24
If you have any feedback, questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.
Regards,
Brendan
The full written transcript, with timestamps, is below:
Nick Tuttelberg 0:01
Simply put, it's a secure way for you to share your transactional data in a digital format to get a better deal.
This is the thinking behind Open Banking. It was never so one person or individual or government can make more money. It's so the consumer can get better deals, better terms or better interest rate, more loyalty points or anything like that that can benefit you as a business or small business individual.
Brendan Le Grange 0:28
was attending a conference on the future of South African banking when he was jarred to attention, a panel of senior leaders and regulators had been asked about open banking his role in that future, and they'd been unable to answer working at the forefront of open banking, Nick had had to educate customers before but this had come after a full day of talks, all discussing the inescapable importance of data in the new economy. So why the disconnect? Why could everyone see the value of data but not the role that open banking could play in leveraging that data? Welcome to How to Lend Money to Strangers, with Brenda LaGrange, and indeed the last of my mini series of South African themed bonus episodes, so there will be an episode on Thursday as usual, but then I'll be getting on a plane back to England. And so to give myself time to get back on my feet, there will be no episode in the first week of September. But make sure you're following the show wherever you listen to podcasts, because we're really going to be hitting the ground running on the.
Nick Tuttelberg, welcome to the show. You're the director of business development for DirectID, a company that we've featured on the show before so it's great to be looping back and hearing what you're up to. Now, before we get into that, before we talk about open banking in South Africa, maybe we could warm up with just a little bit of context of what's brought you to where you are today.
Nick Tuttelberg 2:10
Thanks Brendan, ja, thanks for having me today and allowing me to chat about a very passionate subject. So my background, the last 14 years, it's been with various credit bureaus, prior to that was about 12 years in asset based finance on the credit side. But the Bureau's was probably the interesting part that I really started to specialise in a combination of things on the consulting side. So it was really around analytics decision systems and alternative data.
That's really where it led me to direct are these both FinTech that specialises in open banking data with something the entire markets looking for, you know, data is so important now and open banking speaks to that to a large extent.
Brendan Le Grange 2:53
Nick, as we said, you're at DirectID. And I've previously had on here, James Varga, the founder of DirectID, but for those who maybe didn't listen to that, and want to finish listening to this episode, before they go and find it, could you maybe explain what DirectID is, who you are, and what niche in the market you're filling?
Nick Tuttelberg 3:13
DirectID has been around for about 10 years, we are a FinTech that essentially develops and owns open banking software.
So just to jump a couple of steps back, the FCA in the UK only hands are two types of licences. One is a common payment platform. In other words, you do all your payments on a platform. So you don't have two banks and two apps and two sets of passwords. The other one is a Common Data Platform where you aggregate a full 360 view of the clients data on one platform. DirectID is that type of company.
We take the transactional data from a consumer - with consent and in a secure way. And we then aggregate that data for various insights for selected clients. And we were the first company in the UK to actually integrate on a count aggregation platform, like I'm sure we'll talk about today, those insights, you know, vary across the board for both consumers and SMEs. But because of the richness of the data, the verification of the data, there's a lot that you can actually see underneath the hood, compared to some of the other regular ways of getting data and especially traditional data with someone owns like a car or a property. You know, those typically are easier people to actually vet to understand. But someone that doesn't have debt like that, or we call them basically thin clients are very, it's a very difficult way to help them, you know, actually obtain credit. And that was the dream of James. Why started the company was financial inclusion. It has morphed into other services, as you know, analytically and clients have asked for more insights, but really it was about financial inclusion align people that couldn't qualify for credit to qualify for credit.
Brendan Le Grange 4:58
I think last time we spent back to James Varga. And we spoke quite a lot about the UK, because that's the market that he is in. That's the market DirectID started in. And it's also probably the furthest ahead in terms of rollout of open banking. But today be a little bit different because we're going to talk about the potential benefits of open banking, in newer markets in developing markets like South Africa.
And it stems from a conversation you and I were having the other day, where you were at a conference at GIBS - which is where I did my MBA - talking about Beyond Banking, what's next in the South African banking industry. Day one, as I understand it went sort of as you'd expect it, with people following that old line of 'data being the new oil'. But then on day two, there was a panel discussion that you were watching, and you raise a question about what they saw as the role of open banking. And it became evident that even some very senior leaders in the industry didn't quite know where open banking would fit in this new data-producing, data-transporting, and data-refining industry.
And maybe open banking is not fully understood. The perhaps the breadth of its various uses isn't fully appreciated, because it's often working in the background.
Nick Tuttelberg 6:13
You're sure. So Brendan, I think the conference was a good conference. And it was with a lot of top business leaders. So it was great to hear what people are doing well, and where they haven't been successful, and it had some business in the conference that are going through a very good patch, and some that are struggling. So the CEO, interviews were very relevant.
I think my surprise came from when it got to the open banking side of things, some of the participants didn't get the crux of what open banking is. The first part of the conference was talking about what financial institutions have been successful. And why exactly as you said, the wise they've used the data so well. If you can look at data, and learn from it, and use it properly, you really got your step ahead.
Everyone can think of some names that have great data about a person or full 360 view. So the data side was a constant theme through the conference, in terms of how it's used and if you use it properly, it can be a good differentiator.
Then at the conference we could challenge the panel about why don't we look at Open Banking a bit more and legislated it, and have a plan in South Africa. And I think some of the comments that came through, which did surprise me and some of the other attendees, it wasn't just myself was that it's very cumbersome and costly; for the banks, there's not a major benefit; for the country, fraud could be a problem; and it's mainly based around creating payment rails, so it's really just about creating one platform to do common payments on.
You know, if you talk to any CEO in the country at the moment, with anyone in business, they will know what open banking is the theory but so few people know exactly what it is in practice. And it's even in some of the countries that have its legislated. So not everyone in the UK knows exactly what open banking is. So I'm not not saying that for a moment that everyone loves it, and everyone knows what it is. But I think there's a big difference between the theory and the actual practice, if it's used correctly and properly. And it's not made for everyone, I must also make their comments. But if it's used correctly, and it suits your your business needs as a small business or individual that doesn't have credits or debts or your contract worker, it is a fantastic tool. Everyone wants things quicker, simpler, faster, cheaper, they want it at the home, they don't have to drive anywhere, open banking talks to all of that.
Brendan Le Grange 8:35
Yeah, Nick, with that in mind, I think that open banking, like all new technologies, is prone to be misunderstood. So maybe before we get too deep into how it can help bring forward South Africa's banking industry, maybe we should just start with what is open banking.
Nick Tuttelberg 8:52
Simply put, it's a secure way for you to share your transactional data in a digital format to get a better deal. So you share it with whoever doesn't have to be a bank, it can be a retailer, you sharing your transactional data to get a better deal.
And that can come in many formats. That might be a better interest rate or higher limit, longer terms. And that could be for business or consumer. And that's why it was brought out originally in the UK, they didn't think was enough competition among the banks, they wanted consumers to have a better choice, you know, to move banks. It was never so one individual or government can make more money. It's so the consumer can get better deals. So it's really about sharing your data in a secure platform, as I say, at a higher level to get a better deal or whatever the deal is.
Brendan Le Grange 9:39
Yeah. And I'll add into that, that that benefit could just be convenience. I've used that here for rental screening, and rather than having to go to a bank and print out bank statements and get them stamped and do all that sort of stuff you used to have to do to prove your income. You just was one click and then they did their income approval and off we went and I was very happy to say that that work there.
Nick Tuttelberg 10:03
That's a good point. I mean, in SA at the moment there are about 3 million credit applications done a month, and when we looked last looked at the numbers, most of them are still asked for at least three to six months manual payslips, and manual bank statements. And this open banking effectively the first start of the benefits - and there's quite a few list of benefits - that's the first port of call that you can actually start waving at: you can literally share that from your lounge at home, it's even cutting out the fraud aspects, you know that you changing PDF documents and your pay slips being doctored, it cuts all of that out.
But you're exactly right, the convenience part is probably the starting point. And then you move to more sort of the financial deal side.
Brendan Le Grange 10:44
Obviously, there's a lot more of it under the hood than just here's what my bank details are saying. But you know, that's what the first association is in people's minds perhaps. And because of that, I think you we can understand why it's natural to feel a little bit nervous in our whole lives, we don't give your pin to anybody, check over your shoulder, no one's looking at you, when you doing your internet banking, don't share any of this information. And people can almost think, 'oh, now with open banking I'm somehow giving control of my bank account, I'm giving my banking details to somebody'.
But that's not really what's happening. Maybe you can talk a bit about what that content is, and how that's different to say, calling up a screenshot of your bank account.
Nick Tuttelberg 11:27
It's a very good point, because I think that's where some of the not the negative comments, but maybe people are very adverse to it is around actually the process. So the whole process probably takes about eight or nine seconds. And I think for most we got to understand that to to be granted a licence, and then to hold a licence to access this data. There is legislation covering it and there is compliance rules, and you need to qualify and you get audited for it.
So the process itself doesn't if you get grant a licence differ from company to company. And that process has been tried and tested, you know, that's been going on for at least the last five years in the UK and across other countries.
So now that's the thing that sets it apart, that it is a very formalised process, very safe and secure. And it's the exact same risk as if you log in onto a web page of your your bank, there is minimum two factor authentication. So what I mean by that is, it could be a combination of your credentials, plus an OTP, one time password, one time pin, or a biometrics, something that your bank sets up on your phone, all the data received is encrypted. These are all part of the legislation to qualify for licence, so no company could sort of start waving it and make it easier. It has to be all the above board the whole idea of the process. And that's why I think consumers sometimes sometimes get it wrong is that the whole passage and journey is very transparent. And the power is put in the hands of the consumer. In other words, you know exactly what the specific purpose is that you're consenting at any stage, you can cancel that consent before and after you can withdraw it at any stage immediately.
And once you've consented, you do get then a reference number that if you need to back to it, you've got that exact specific purpose that you granted it for. So this puts the power of the data in the consumers hands here.
Brendan Le Grange 13:19
And when I spoke to James and we were focused primarily on the UK market of open banking. But the fact is, you are now moving well beyond the United Kingdom. And you're looking at providing open banking solutions in many different markets. So what is DirectIDs global presence like at the moment?
Nick Tuttelberg 13:37
It's one of the areas that we do differentiate ourselves, and it's something that we have built up over the last 10 years. So we are in over 45 countries at the moment, representing 45 countries, and what's significant about that is we've worked on obtaining various bank connections. So we've got over 13,000 bank connections over these 45 countries. And that's significant, in other words for some of the global clients that we've signed up, so when you move to a global client, and they want to use open banking, that richness of data over to three countries that don't necessarily have to start from scratch, and especially if they've partnered with a global decisioning provider decision system provider, we can then facilitate the same relationship and agreement across various countries. So that's something we worked very hard on doing.
So it's not just UK-based.
What you're trying to do at this stage is to try and pinpoint some of the countries that are growing at a faster rate for various reasons. We're looking at South Africa, Turkey and India. We're also looking at Hong Kong, besides the countries that we really invested in like the UK and USA, Canada, Australia. So it's really about growing at the right pace, you know, listening to clients, making sure you understand the market, partnering with the right clients in each region.
That does take time as I say, if you do that too quickly, it can backfire. So we really try to be smart about our or expansion and our movement.
Brendan Le Grange 15:02
But it's also, as you mentioned, got more users than just simply replacing the 3d printed bank statements that you might have had to take in the past.
There's a whole lot more use cases. And you mentioned that at that conference, it was maybe not clear to the industry, what those use cases where, what are some of the big use cases for ever making that you've seen around the world that you maybe think are well suited to South Africa and other developing markets?
Nick Tuttelberg 15:29
You're so there's quite a few. But I think the top one, especially if I look at South Africa is probably financial inclusion is one assessing, let's say, thin clients. In other words, clients that don't have an established credit record yet, someone very young, with our debt, yet someone with debt paid off contract worker, and someone that maybe doesn't have mainstream debt, you know, like a house or car.
And that is a big challenge in South Africa, you've got a lot of people that don't have mainstream credit. So how do you assess these type of clients, because they're not all bad, they're almost medium. So you don't know if they're good or bad, and you don't want to use these clients. So I think the one side and the consumer side, the biggest use case I've seen is on radio alternate data, looking at how to assess clients with limited data, how to assist them better make sure I'm not turning a good client away.
And I think on the other side, in SA, it is a concern, but I've seen it a lot around the globe is on SME side, what we do is we take the client's data, the SMEs data, and we automatically calculate cash flow, which is a very manual process, as I've seen in lots of banks around the globe. And you can start in calculating cash flow really, for companies under three years old, using technology using machine learning open banking, the solution allows that then it is so we do have a fundamental problem and a lot of SMEs do not do two sets of financials, and that came out in COVID.
With the COVID relief, it was a big concern. A lot of them don't produce financial. So this is a way to verify cash flow in real time in a couple of seconds.
And the other part, which is very important, we're not there to replace bureuas that we work with, you know, they, they have a very important part of credit and risk also defaults on it. But what they don't necessarily have is the ability to pay the affordability. We obviously from bank statements and our cash flow calculations, we can give you a financial view, the affordability view of the SME can actually afford it the ability to pay.
And at some of our biggest use case successes so far is on the SME side, which if you look at the banks in SA, it's a big focus, hot topic and a growth area. But it is fairly untapped. But it is a market you have to be carefully. And there's no reason not to go over it. But you want the best data possible to assist the clients.
Brendan Le Grange 17:44
Even if you are producing formal financial statements. There's such a lag built into those that usually you've got to get your business up and running for a while before you're big enough to worry about it. And then you get them going and then the bank might want two years of those. And by that stage, you're looking at data that's really very old.
And obviously the world we're living in now, things today are very different to what they looked like six months ago.
Nick Tuttelberg 18:08
You're you make a good point to bring in, as I say it's that lag effect with with data when we seen listed companies, you know, under COVID conditions, you know, going under within within a month or going into business rescue. That's one thing you told us, you know, no one is safe enough.
I look at all the clients. They're all assessing the entire debtors book now, we're sort of five years ago, you only maybe looked at the ones that weren't listed or that weren't large come now everyone gets assessed. So open banking data, it's real time data exactly as you said, there's no sort of lag effect. And with interest rates going up now, things can change very quickly for business or for individual, you know, even building sort of early warning models for interest purposes from the state because you can immediately see people dipping into the overdraft, you can see taking on extra debt, you can see some miss payments, you can see dipping into their bond (mortgage).
These things you can pick up straightaway with transactional bank data. You don't want to act when you hear the person's going into business rescue or liquidation or sequestration, it's generally too late. It's after to the fact.
I must give you a quick example, if I can, about the way it's gone - I mean it's jumping 20 steps ahead - but you know, the guys in Europe that have open banking, in cases now they're actually looking at, if you purchase like a ski pass and they pick that up on your bank statements, they're pushing out short term insurance to you - and you've got the option to take it and push out a very attractive offer while you're on the slopes. It's that it's there's real time offers.
I mean, that's the end game: you can see someone paying for school fees every year, push out an overdraft to them, push out an offer. So it's it's also giving that client that bespoke service that everyone wants. We all love that when it's addressed to me and my needs.
Brendan Le Grange 19:48
In terms of actual demand, are people in South Africa actually using open banking? What numbers are you seeing how much real demand is there for open banking through these different technologies?
Nick Tuttelberg 20:01
I mean we're going to talk about South Africa today, but in the UK, just to give examples, only going for five years, there's billion transactions a month and under open banking at the end of June. So it's a billion transactions per month. And there's 6 million users. So that's a combination of SMEs and consumers.
And that's over a five year period, you know, so that's great.
That's probably 25-35% year on year growth. If we drill down to SA, there's probably about 4.9 million transactions of the last two months, if we look at our partners that we use, it's SME and individuals.
So it's alive and kicking. It's just not called Open Banking at this stage maybe by all the banks, but it is happening, and the numbers are growing, and the banks are looking to open up the API's - they have seen value in it. You know, what came out in the conference was also very clear, the banks are open to talk to to fintechs. And partners, if there is a common benefit, as long as those value propositions are clear and attractive, that banks are willing to talk.
And we are obviously engaging with some of the banks around those value propositions, but it's what we've alluded to today, in terms of that, we can just make the life easier for their clients. And again, it just brings more market shape using technology and using machine learning. Clients, then we'll start, you know, without pushing out with big marketing will start talking. So look to deal with this bank, on the business side, it's just so easy, you know, within 10 seconds, I've shared everything I get once in a day.
That's the type of thing we talking on the SME side, which traditionally hasn't always been the case, traditionally, on SME, it is weeks of going back and forth.
Brendan Le Grange 21:41
Yeah, and actually just recorded an episode this morning, that's going out after yours, sort of stealing one of the insights from there. But if we can reduce these costs that are involved, so it's very expensive to do an SME loan when you're doing all these ratios, all these manual processes, both for the borrower and for the lender, if we can reduce those costs, and we can make more loans profitable. So it allows the bank to lend to small SMEs to lend to SMEs earlier on. So even just the operational benefit is also a way to improve access to finance.
Nick Tuttelberg 22:13
You know, financial inclusion goes as far as SMEs also, you know, when you're talking about financial inclusion, not just consumers, you know, all the countries that did well, after COVID, they recovered the quickest. They put in the grants and the funds and the relief into the SMEs, that was the focus on the ones that got in distributed that money as quickly as possible, you know, we're on the forefront, you know, they've got their contract as quickly as possible, we need to do that, you know that financially, because I think an essay to get SMEs off the ground is crucial.
And the banks have recognised that.
So it's easy, it is out there, the guards know that it's just how do you make that process more automated, how do you make use more technology work smarter, that hasn't necessarily transferred, you know, from the consumer side, which was always sort of, because of the economies of scale, the consumer side was was the battleground now, sort of SMEs.
And when I speak to data scientists in the companies, you know, even when I was at the credit bureau, they constantly asked, I just want more alternate data, the guys are hungry for data, you know, speak to the actuaries at insurance companies, they just want more data, the more data they get, the better the models are, the more market share the better growth, you know, everything just works. Because you can trust what you're putting out there you can make confident calls in so it's about just getting your hands on more data that you can trust.
Brendan Le Grange 23:33
And if people listening are interested in learning more about open banking, and about what DirectID can do for them in that space. Where should they go to look first to learn more about your organisation? Or maybe to start a conversation?
Nick Tuttelberg 23:48
Yeah. So I mean, I'm happy to engage with anyone individually, via LinkedIn, I have got, you know, guys reaching out to me and wanting to chat and go down to into some of the use cases, because I think that's the best way. And also the other advantages. It is all web services or via an API. So there is no coding, we can set up clients within four or five days. So it's not like a massive project.
We are on POCs with a lot of clients at the moment, we happy to prove value first before we talk, massive commitment or long term contracts. And you're welcome to go to the DirectID's websites (www.direct.id)
And then also, you know, Google Open Banking - this year alone, by the end of the year, 108 countries will implement open banking. That's a big number. We should be in that number.
You know, I don't know why we're not in that number. You know, we have such good banking setup, our central bank is well run. We should be there. I think that has started to a large extent. But we definitely you know, those 108 countries, South Africa should be the we can teach the rest of the world a couple of things and open banking. As I say financial inclusion is a concern for every company I've talked to and it can just speed up that process.
Brendan Le Grange 24:57
Yeah, I'm a big fan of open banking. I Wish you the best of luck in getting it up and running in South Africa, as you said, I think there's a lot of things about the market there that make it perfectly suited for infinite banking. So yeah, I will look forward to your growth in that space.
Nick Tuttelberg 25:13
Thank you, Brendan, you're thanks for having me today and allowed me to talk a bit about what open banking is, and just to hopefully, you know, squash some of the sort of myths and rumours around it, because, you know, all the top executives know what open mean, but the practice is very different.
And again, I say, it's not there, for everyone that you have to use it, it is always offered as an option. And that's what clients want, they want options. Clancer give me options. If I want to go faster, give me an option to go faster. If you don't want it and you don't feel you need it, there's another option to go but slow. And to go another method, it's still an option, but it's just those people that are using it, or seeing the benefits. And these multiple benefits. As I say, it's just to hopefully squash some of the rumours and gives people a lot more confidence in the whole process
Brendan Le Grange 25:59
Yeah indeed, I've grown up in the industry. And when I first heard about open banking wasn't sure what it was, you know, we first had screen scraping of bank statements, and it was sort of okay, so just like that, it's just showing you while my bank statement is and it was only as I got closer into it, that I started to see all the things that would make in the modelling space, in terms of the risk control in terms of product design.
Nick Tuttelberg 26:23
You're not going to just share your, your banking details, if there's nothing in it for you. So that's the Open Banking proposition, you share it to benefit in some way, as I said, and start to get a better deal. It's very important that people understand you would share it to get something for it in return. And, you know, the big thing is, was to get a customer 360 view what the client looks like from a positive and a negative point of view.
In other words, what they're investing in saving, and what are they borrowing that is the pinnacle of the position to be in and from the categorization which we apply to the bank statements where you spend your money. In other words, is it on entertainment, is it on petrol? Is it on travelling, and then how you spend your money, the classification that is in terms of do pay by credit card, you pay by cash, EFT, and that such rich data and insight to manage a person proactively view because you can just manage the person's needs, their wealth needs, their debt needs, whatever, so much better knowing what the next move is.
And open banking speaks to that and sort of speeds up the process. But it's also the first step in helping them budget correctly. So you know, that financial inclusion loop comes back again, that if I share with you that you only save this per month in a friendly, user friendly way. But you spend this much in entertainment, that you can then start pushing back to the client and helping them manage their money better.
Brendan Le Grange 27:46
It's a win win win for everyone involved. So yeah, I encourage people to reach out to you at direct ID. I'll put those links in the show notes. And yeah, thank you again.
Nick Tuttelberg 27:56
Thanks, Brendan.
Brendan Le Grange 27:57
Thank you. And thank you all for listening. If you enjoyed that, please do rate and review on your preferred podcast platform and share widely including on LinkedIn. And while you're there send me a connection request. The show is written and recorded by myself Brendan Le Grange in Brighton England. Show music is by Iam_Wake and you can find full written transcripts, show notes and more content at www.HowtoLendMoneytoStrangers.show
And I'll see you again next Thursday.