No Easy Fix For Freelancers’ FinServ Needs — Even With PSD2

A few bank scandals and research highlighting smaller companies’ frustrations with traditional financial institutions (FIs) have ushered in a wave of challenger banks in the U.K., many of which were designed specifically to address the needs of small- and medium-sized businesses (SMBs). As the country prepares for regulations aiming to promote open banking and the sharing of financial data, the financial services space will be more armed than ever to create SMB solutions and fill in gaps left by traditional FIs.

SMBs are ready for change, too. Research released earlier this year from FinTech software company Strands found that small businesses largely consider their banks to be a utility, not a business partner. Forty-three percent said they are considering switching from a traditional bank to a challenger bank because they are unhappy with services they’re receiving so far.

But Ivo Weevers, CEO and co-founder of invoicing and expense management FinTech company Albert, says something is still missing: services designed for freelancers, independent contractors and gig workers. And, while regulations like PSD2 will certainly promote deployment of services that can address freelancers’ needs, too, they aren’t necessarily the silver bullet to ensuring FinTechs and banks work together to meet freelancers’ and SMBs’ needs.

Those needs, Weevers recently told PYMNTS, aren’t necessarily the same, either.

That’s largely due to lifestyle differences between a freelancer and a small business, as freelancers are constantly on-the-go and often lack resources, personnel and expertise to manage finances. Weevers looked back on his own history as a freelancer, traveling around London and the U.K. and in need of a mobile solution to check on his professional finances.

“It’s a very different lifestyle, compared to having a dedicated finance person in the office that has expertise in this field,” he explained. “The lifestyle of one-man bands — freelancers, contractors — is very different. They care about their freedom, and they have less time and expertise for their finances.”

Traditional accounting software, even solutions designed for small businesses, often fall short when it comes to addressing freelancers’ demands. Considering the often mobile nature of the freelancer, services must be mobile-friendly, and that led Weevers and co-founder Dan Bruce to develop Albert — and to choose mobile-friendly financial services partners.

The latest is Starling Bank, a U.K. challenger bank that positions itself as a mobile-first company. Starling revealed in October that it would be introducing business banking services in early 2018 after recently rolling out app-only consumer accounts.

“We fundamentally believe lifestyles are mobile, especially for younger people, but more and more for everyone,” Weevers said.

He cited industry research that points to consumers’ reliance on mobile, even when choosing a financial service provider.

“We saw people go to the app store to check out the app of a bank, [and that is to help them] choose which bank to bank with,” he said. “More and more research shows people first go to mobile apps to find services. We believe in a mobile-centric world.”

At the very least, mobile banking is on the rise. Research from Malauzai Software found earlier this year that consumers’ active use of mobile banking apps has surpassed 50 percent, while some FIs see nearly half of their customers exclusively using mobile channels over desktop to access services.

There’s no reason why freelancers and gig workers wouldn’t follow that trend, but Weevers said there’s a gap in the market when looking to address their nuanced financial management needs. That’s where FinTechs step in, he explained, not to push traditional FIs out of the market, but instead to enhance their offerings.

“I don’t believe traditional banks will go away — they will still play a very important role in infrastructure, but their roles will change dramatically,” he said, adding that traditional banks still have the security, licenses and reputation that customers need from financial services providers.

Research from Visa U.K. last year found that 59 percent of SMBs say they trust their banks as payment providers compared to 40 percent that trust their alternative online payment providers. The data speaks to small businesses’ trust of the banking infrastructure, even if they’re dissatisfied with the services they receive.

“But especially with bigger financial institutions, they have a lot of problems building products that serve a particular segment,” Weevers explained. “They are either too big or too slow. You have freelancers, and there are FinTech startups that are more able to serve the specific needs of these people better. Therefore, I believe in collaboration with banks, which provide the infrastructure.”

Key to the FinTech-bank relationship today is data sharing and, in the U.K., regulations like Open Banking and PSD2 — which press financial service providers to open up data on the understanding that it’s the customer, not the financial institution, that actually owns it.

“I think the law is really good. I think it makes a lot of sense,” said Weevers. “As a customer or a business, I get to decide what’s happening with my data. And when I decide that my data works really well with, say, a bookkeeping platform like ours that gives me particular benefits, I should be able to use that.”

The freelance and gig economy population stands to benefit significantly from open banking, the executive added.

“It enables so many opportunities for them,” he said, adding it will continue to create new opportunities down the line to better meet customers’ needs.

But data sharing isn’t necessarily the solution to filling in gaps for freelancers and gig workers, warned Weevers. In fact, while dozens of collaborations between banks and FinTechs have been announced even before regulations like PSD2 have come into effect, rarely have these partnerships actually created usable services.

“There has been a lot of talk about integration, but actually, not a lot has materialized,” he said. “For example, there have been a couple of integrations already with Starling, but none of them have started to show bank data inside the third-party app.” (Weevers added that Albert’s integration with Starling is one of the few such integrations that is actually showing that bank data to its users.)

Plus, companies need to be ready to not only comply with the regulations that address data sharing, but also to comply with data protection rules, too, Weevers explained.

That is easier said than done, especially considering the confusion and lack of awareness around some data protection rules coming into play. Research from Nesta, for instance, recently found a lack of awareness as to what Open Banking even means, while separate analysis from SmallBusiness.co.uk found many SMBs — especially those that handle significant amounts of data, including FinTechs — remain unaware of several aspects of upcoming General Data Protection Regulation (GDPR) rules and could face hefty fines as a result.

“There is this overall belief that everybody can start hooking into these platforms, but you still need to provide the security and stability that something like a banking platform provides, because we’re handling your data now,” said Weevers, reflecting on the inevitable challenges of data security and reliability that come with greater data sharing. “The [FinTechs] that will survive are the ones that will know the financial rules.”