Why This Startup CEO Thinks Open Access To APIs Can Fix A 'Broken' Payments System

The Benzinga Fintech Summit is a gathering of the top leaders in brokerage, payments and cryptocurrencies in San Francisco Nov. 14. Ahead of the Summit, Benzinga is profiling fintech thought leaders who are speaking at the event.

For this installment, Benzinga interviewed Steve Kirsch, CEO of startup open banking API provider Token.io.

What is Token.io? What problem does it solve?

TokenOS (TM​) ​is a universal open banking platform that allows banks and third parties to interact in a digital global financial services ecosystem and take advantage of new open banking access in Europe. Widespread development of proprietary APIs is causing fragmentation and integration pain, holding back the development of the market. 

Token solves this pain by offering a single API to access all banks—enabling rich interactions between all parties and delivering a frictionless digital consumer experience, best-in-class compliance, data access and payments use cases and better open banking propositions. At the core of TokenOS are Smart Tokens, which create new lower cost, frictionless access to data and payments.

As a serial entrepreneur, what attracted you to this problem?

Payments were, and still are, fundamentally broken - expensive, insecure and full of friction for everyone involved. Stripe has made this process easier for software developers, but the underlying protocols haven’t changed. I saw PSD2 as a way to upgrade the “plumbing” underlying payments and bank access.

The Second Payment Services Directive (PSD2) was a natural starting point, but it wasn’t the solution, and certainly wasn’t the start of open banking. We have to give PSD2 some credit, because despite consumer demand for more customer-centric financial services (early success of digital challenger banks demonstrates this reality), it is unlikely that high-street banks would have opened up to third parties without a regulatory incentive. I saw two clear opportunities - helping banks quickly achieve PSD2 compliance and banks and third parties to take advantage of the new open banking payment rails that were going to open up in Europe.

The banks you connect are primarily European—why are you based in San Francisco?

When I started working on what would become Token, I asked a group of Stanford students to work with me on developing our APIs. Our San Francisco office was born when they joined the company in engineering and product roles after graduating. As the PSD2 and open banking roadmaps became clear, the natural next step was to build a team in Europe.

Our London office opened in 2016, with business development, marketing, risk and legal on the ground to meet the growing demand for an open banking platform from banks and third parties. Our COO, Todd Clyde, recently relocated to London to lead our open banking strategy, and we now have a team in Germany.

San Francisco remains our R&D hub, with myself, co-founder and CMO Marten Nelson, and CTO Gaurav Kohli leading the teams here. Being across different time zones also makes us more accessible. We’re seeing increased interest and intent to launch open banking in the Middle East and Asia, so our locations position us well to serve our customers around the world 24/7.

What are the different utilities your bank partners find for your APIs? I notice that there's a compliance element in addition to the payments infrastructure aspect of Token's APIs.

Banks were initially concerned that PSD2 and open banking would allow others to come between them and their customers. In reality, it is an opportunity to position themselves at the centre of their customers’ digital banking experience and generate new revenue streams.

Partnering with Token is the fastest and least expensive path for banks to become compliant and launch new open banking propositions. We are working with banks that have launched proprietary APIs to tick the compliance box (and allow other banks to connect to them) and are overlaying our technology to take their digital banking to the next level. There are also banks in our portfolio that need our turnkey software to achieve compliance and a partner to shape their digital strategy.

In both cases, the first step for most banks when creating an open banking proposition portfolio is launching a Personal Financial Management (PFM) solution. Here, banks use our API to connect to other banks and then aggregate account information held with other financial institutions in their own consumer app. The real power, however, lies in leveraging Token Connect to move beyond pure aggregation operations to give the customer the power to act on the information they see in their app. So, if one account is showing an overdraft and another a credit, a user can move money from the latter to the former - the data and payments propositions are combined.

Banks also have a lot to gain from the insights that come with a 360-degree view of a customer’s account and transaction information - it becomes easier to target customers with relevant offers and provide easier access to a wide range of financial products.

Meet leaders from the top fintech startups at the Benzinga Fintech Summit next month. Limited tickets available.

Do you feel that banks will lose long-term market share to fintech players that have "unbundled" banking services? How do open banking platforms like Token fit into that dynamic?

Yes, banks do risk losing share to fintech players, but they also risk losing share to the traditional banks that move quickly to embrace open banking. Take the UK as an example. There is already a high propensity for current account switching among the largest banking providers, and a high percentage of UK consumers are also now indicating that they are willing to try new financial service providers. Again, this goes back to the lack of customer-centricity that plagues the industry.

Open banking platforms like Token create an ecosystem in which all players can thrive, in particular the banks - we connect banks to third parties and other banks, enabling them to attract and retain customers. We solve part of the digital strategy puzzle for banks, allowing them to focus resources on their core business areas and banking strategy, rather than the development and maintenance of APIs.

What advice would you give to someone with an idea that could disrupt financial services?

Be patient. Even if you have a fantastic idea, it’s going to take a bank a long time to realize that. You will uncover additional opportunities as your conversations with banks or other players progress, so stay flexible because those insights will guide the evolution of your product strategy. Hire the best in the business from your target customer segments. Find the best partners in your home market, or abroad, and work together to take high quality solutions to customers quickly.

And finally, be bold in your opinions to facilitate change. Not everyone will like you, and that’s okay.