Open banking start-up Basiq snares funding from Westpac and NAB

The venture capital funds of Westpac Banking Corp and National Australia Bank have co-invested in Basiq, a start-up that scrapes financial data from bank webpages to help fintechs compete with incumbent banks. Taking advantages of the government’s moves to create an economy where data moves more openly, it plans to morph into a new banking platform that uses “application programming interfaces” (APIs, or software connecting computers) to improve customer experience of financial services.

The seed investment by Reinventure Group, Westpac’s venture capital fund, and NAB Ventures comes after Treasurer Scott Morrison said in last month’s budget an “open banking” regime would be created, liberating customer banking data. The Productivity Commission, and a parliamentary committee being chaired by David Coleman, have also called for the establishment of data-sharing regimes.

Their investment in Basiq suggests NAB and Westpac see open data as an opportunity at least as much as a competitive threat.

“We can see that open data is coming and we want to be on the front foot,” said Todd Forest, managing director of NAB Ventures.

“Basiq could play a role in that evolving landscape and provide a secure platform. This is coming, and the best way to solve for it in a positive, collaborative way. This is a bigger play than just access to data. This is about ‘banking as a platform’, where middleware like Basiq can enable new, innovative services for our customers.”

NAB is already building APIs. It launched an API developer portal last year, and has exposed APIs to developers to show NAB ATM locations and foreign exchange data while it tests and evaluates how to best enable additional data sets.

Kara Frederick, Reinventure general partner, said “an ability to connect to the world of fintechs in a trusted, centralised way is valuable to the largest financial institutions. Basiq provides a common pipe for faster and secure integration with fintechs. This will allow banks to deliver more functionality.”

None of the parties would reveal the dollar amount of the seed round, the second co-investment for NAB and Reinventure; the first was also a data play. A year ago both funds invested in Data Republic, the platform that allows companies to exchange data in a secure environment, alongside Qantas.

Both NAB and Westpac refused to comment on the likely timetable for an open banking regime being established. Mr Morrison and Mr Coleman are pushing for an ambitious 2018 timetable. The Australian Securities and Investments Commission is likely to get involved to determine standards.

Using Basiq could help big banks with tasks such as income verification, which is often tough because many customers of one bank have accounts with another but the data isn’t shared. This means Basiq is potentially disruptive to companies like Experian or Veda, who currently provide income verification services to banks.

Basiq, which competes against Yodlee, a US scraping company that was sold to Envestnet for nearly $US600 million in 2015, has 13 staff, and is based in Stone & Chalk in Sydney. Forty fintechs have joined the platform, and there are more in the pipeline.

Founder Damir Cuca, who professionally started working as a software developer 17 years ago, says Basiq was born out of a frustration with the status quo when he couldn’t get bank connectivity, secure data access or access to other banking services when he began developing a budgeting app in mid-2015.

“We are about enabling innovation by helping banks expose their APIs and creating a frictionless experience to allow fintechs to tap into that. We are also playing the long game, where we can help banks expose other services they have to fintechs,” Mr Cuca said.

“A key part of realising this vision is to work with existing financial institutions and fintechs and be the bridge between the two. The institutions provide the regulatory discipline and the core systems, and the fintechs provide the speed of innovation.

“Basiq is the enabler to these. It makes it easy to onboard new fintechs whilst creating a secure environment for banks to develop innovative solutions.”

In hearings before the Coleman committee in Canberra the bank CEOs have stipulated that a data sharing regime must be accompanied by strict security standards. Basiq’s current model relies on customers providing banking passwords in order to facilitate the account scraping, which is being done with a technology system that passed a review by NAB during the due diligence.

Basiq has spent $500,000 on security this year, including a data storage and retrieval policy. Ms Frederick said Westpac believes “it is critical to be part of the security discussion. It is inevitable that banks will be more open, this is starting to evolve, but security will always be paramount.”

Reinventure hopes the deal will help it respond to new banks which are emerging in the US, Germany and Britain after changes to bank licensing laws that will be replicated in Australia, Mr Morrison said in the budget last month.

“We have been thinking about what does it mean to be a bank?” Ms Frederick said. “In the UK, legislation is opening up what banking licences look like, and in the US expanding licences are also on the table.

“Now that discussion has arrived here, it is inevitable the regulatory framework will incorporate what is happening in the market. We like to invest ahead of regulation.”

Mr Forest says NAB was given confidence to invest in Basiq due to the quality of the founder. “Damir looks to solve real-world problems for customers and just gets on with it. He is ambitious and proactive, and will help create innovation which has the potential to benefit the entire sector.”

Mr Cuca says he hopes the banks will treat Basiq like they did cloud accounting software makers MYOB and Xero, which also began by using Yodlee to scrape customer bank accounts, before deepening relationships that saw banks open direct data feeds through APIs.

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