The unicorn, that legendary creature described since antiquity, has been re-purposed by venture capitalists as a start-up company with a value at over $1 billion. Now unicorns are not as rare as they once were. Many are household names: AirBnB, Snapchat, WeWork etc.
Disparate though their offerings may be, unicorns share a similarity in their disruptive effect on whole markets. Some re-invent how the market operates, some create services that weren’t available before and some just offer a better service than their competitors.
The second payment services directive (PSD2) is changing the rules for the banking industry. From January, the UK’s banks will have to provide your transactions details to any authorised organisation you have approved to have them. They will also have to make payments on the instructions of organisations you choose to do this.
Meanwhile, Open Banking will shortly go live, helping to make PSD2 a reality in the UK. Banks will have capabilities to securely share your data and transact with your permission. Consumers will have more rights over their data, as well as access to a Europe-wide digital market for services (at least for a while).
These changes provide opportunities for unicorns. The question is will they come?
We are already seeing the sort of business that might thrive: comparison sites that could make that difficult switch on your behalf; accounting services that access your bank accounts to pay your bills; services that dynamically help you understand your finances. These are the obvious ones. But bright minds and capable coders will have much more in store for us.
Unicorns need revenue. They might not make a profit for a long while, but if there is revenue growth and a potentially huge market, then investors will come.
Revenue is the key to success, and there are different ways to produce it. Innovators can charge consumers for a service (e.g. Spotify), they can get the product providers to pay (e.g. PayPal), or they can offer a service which produces a by-product that can be on-sold (e.g. Facebook). All of these methods have produced unicorns.
In retail banking, margins for some products can be razor thin, or even non-existent. In many banks, a few profitable customers subsidise the rest. So it seems unlikely that product providers are going to provide revenue. Furthermore, with the current possibility of “free, if in credit, banking” it seems unlikely that consumers will pay much for new services when they might never have done so for their existing ones. However, this may change: retail banking services have not always been available without charge and aren’t in many other countries.