The road to open banking is not straight nor is it always clear. Actually, most of it is still uncharted territory. Along the way, visionaries, builders and enablers lead the change in the finance and banking industry.
We wanted to sit down and talk with them so we launched a podcast — Connect.
On Episode 3, we sat down with KOHO’s CTO Kris Hansen. If you could build a brand new bank today, how would you shape it? The folks at KOHO get to do exactly that — and find answers to that exciting and quite frankly dizzying question — ever since they’ve launched the digital ’neobank’ in 2014. Our discussion with Kris brought to open banking, working with existing systems, and customer experience in the data world.
Connect brings you deep dives into the world and mindset of innovators. If you liked this conversation and don't want to miss on future episodes, catch us on Apple Podcasts and Google Podcasts, stream us on Spotify, or subscribe on your favorite podcast app.
No time? No worries! Read our 4 key takeaways from the conversation
- “Creativity thrives on the tension between freedom and constraint”
We feel this quote from Brent Rosso, organizational psychology professor at Montana State University, could be KOHO’s motto. Working within already established systems — accounts, cards, transfers, etc. — their approach to innovation is to allow themselves to give their own, digital-only interpretations. “Why not-” and “what if-” questions are used to think creatively.
- To fight apathy, give the power back — people will thank you
No one likes to feel stuck in the passenger seat — especially not in this day and age. In more and more areas, consumers are able to self-educate and want to assume control. Offering financial services products that give them the tools to set and achieve their goals puts them in the driver’s seat. And who knew, apparently you can get people excited about financial services products.
- The next stop on the road to open banking: alignment on liability and security
Data access is no longer the big obstacle to open banking. In fact, it’s already happening. The pressing questions now fall along the lines of: where does liability lie? Which security standards should we implement to protect consumers’ data? How do we make sure new players are not prevented from entering the playing field?
- Open banking should come with a side of open source
Because why reinvent the wheel — or the good old checking account — when someone has built it and a whole community can improve it. An open source and collaborative open banking ecosystem would free time and energy to build new products. And this would benefit everyone.
Below is an edited transcript of our conversation.
Simon: Alright let’s first have you explain what is KOHO, its mission and impact on Canadian consumers so far.
Kris: Great, yeah. So we at KOHO are really trying to provide a different kind of digital account. What we've done is we've put together an app and a collection of financial services partners to offer people a card, an app, an account, and what we see as really interesting features to help people manage their digital lives in the financial space.
The thinking is that, you know, we've gotten used to doing certain things digitally, and in many ways, the financial services industry has been dragging its feet into the digital world. Well, we wanna jump in, we wanna make things happen, and we wanna sort of change things up to make financial services more digital.
"A lot of people tend to be quite apathetic about their banking experiences. If we can do something that's quite different, then it doesn't need to be like it was."
Simon: You have quite the following, right? You have people that actively support the brand and support what you do.
Kris: One of the things that we do in KOHO, and I think we started doing this and it was a little bit different, is we help people with things like savings behavior. And so, you know, putting aside a little bit of money every day to be able to save up and have some funds available.
Well, our KOHO users started to reach out to us and say, "Thank you for what you've done. I managed to, for the first time in my life, save for an emergency fund. And by saving for an emergency fund, I managed to be able to help my dog when my dog got sick, and I had the funds." And so people were reaching out to us to say "Thank you." We even had one user that went on social media and they had a picture of their tattoo which they had saved for with KOHO and they were like, "Thank you, KOHO. This was an amazing tattoo."
Simon: Oh, that's awesome.
Kris: I thought it was really cool that people are that excited about a financial services product. A lot of people tend to be quite apathetic about their banking experiences, about what's happening in their financial lives. And they shrug and like, raise their hands, like, "What are you gonna do?" Right?
If we can do something that's quite different, then it doesn't need to be like it was. We could do something that's completely new.
The mindset of neobanking: “Why not change that?”
Simon: You touch a really important subject there, which is building habit and also offering a capacity to consumer to be proactive about their finances. And that's something personal finance managers are having issues doing, which is being a partner in the lives of people. There's a certain power there.
Kris: Canadian consumers have told us through their actions that they want financial services plurality. Most consumers are telling us and have always told us that they wanna get a credit card over here, and when they shop for mortgage, they wanna find it over there, and they get a current account from this provider, and they get loans from that provider. I'm not sure that I understand why, but that is what it is.
When it comes to pulling all that together and making some sort of coherent sense of your financial life, it's about information, and it's about being able to consolidate that and get a sense of it. Without some sort of construct to do that securely and do that well, consumers are flying blind. It's too fragmented.
Simon: You guys called yourselves a neobank, and I'm curious to understand, like, what does that mean and how you get to build a neobank.
Kris: I struggle to think of what handle to give what we're doing. And I think in the industry, we call this neo banking. In the UK, they call it challenger banking. What we're, like, what we're really trying to do is think differently about the space, challenge conventions that exist, think much more digitally, and ask the question, "Well, why not?"
There's a lot of legacy in financial services. There are a lot of systems that only process overnight. There are a lot of transfers that take three to five business days to complete. The mindset of neo banking is what's different. And the mindset begins with, well, you know, why not change that? You know, I know it's normally three days, why not figure out a way to make it “same day”? Why not figure out a way to make this happen?
And it's taking a very tech mindset to banking, in that we are using software engineering to solve some very legacy problems. We interface with banking systems that are old enough to have children and grandchildren, and we wrap them in systems that are brand new, and approaches that are brand new to make that happen. And sometimes it takes a lot of work to turn something that has a very clunky customer experience into something that has a very positive customer experience. But that's sort of the business that we're in — thinking from that customer experience back into how we make the end-to-end work.
The road ahead
Simon: Yeah, there's power there, and I think there's also power in like, looking at this collaborative mindset. The idea that there's help coming from the agility of fintechs, neobanks and challenger banks, that are also allowing larger financial institution to change and innovate faster, because it really shows that everything is possible. And when everything is possible, you just think of the end user.
Kris: You know, when we talk about open banking, a lot of what we're talking about is open data. But I think if we define that more broadly, we're also talking about the open source mindset, the collaborative mindset that says, "Hey, you've got something there that's pretty good. I think I can make it better." And who is ultimately benefiting from that? It's the customer. It's the end users. It’s the experience.
We spend a lot of our time in the financial services industry rebuilding things that the people across the street have already built, or are also building. You know, imagine if we were able to spend all of that energy on making the customer experience better. And some of the things that were noncompetitive, we could just, you know, work together to evolve.
Simon: I'm curious to know what are the blocks, when you look at open banking? Could it be security? transparency? Data ownership? In your point of view, what is a block right now?
Kris: When I think about the evolution of open banking in Canada, the hard part is really not the technology part. To get the technology right, we could literally get 10, maybe a dozen people representing different organizations and different points of view into a design room, and we could come out the other end with an API that works for everybody.
But there's another group that needs to form, and this is the governance group — kind of an aligned industry view on where liability lies, and a defined set of security standards that we know that not only we are going to align to, but new entrants that we might not be expecting are also going to align to. Just like the API needs to be defined, the rules of engagement need to be defined.
"Just like the API needs to be defined, the rules of engagement need to be defined."
So my theory is, with these two groups, we could figure out open banking in Canada, you know, probably in weeks and months, versus months and years. I just think that right now, we're spending a lot of time talking about the "what ifs," and I think we need to focus on just getting down to business and making it happen.
Financial inclusion benefits everyone
Simon: Yeah, definitely. I think there's a lot of discussion, legitimately, about risk. But we should definitely be focusing on the solution, getting into the same room and actually talking about what it's gonna look like. If you really believe that the consumer will benefit from better services, at the end of the day you should have complete focus on making a solution happen, rather than thinking of liability, or thinking of risk. Because these are legitimate questions, but they're not the starting point of a discussion. They're a part of this discussion.
Kris: I totally agree. I think it goes even further in that there are segments within the population that are clearly underserviced, from a financial services perspective. And it's for a variety of reasons, like maybe they live in a community where there isn't a branch, and they need to have some sort of a digital account, because guess what? Payments has all gone digital.
And so if you're sitting there in like a small town somewhere in the north and you wanna do something online, you're at a huge disadvantage. Not only are you not participating in that online transaction, you're not participating in modern society.
"Open banking helps to create a playing field where different types of fintech solutions can come in and solve specific problems."
And then, you know, there are other cases where there are people that are really living paycheck to paycheck. And sometimes not even paycheck — I mean, we're talking like, from one Uber trip to the next and just surviving.
Being able to help people save and put money aside, and build some sort of a financial emergency fund and get things moving like that is very important. Open banking is not gonna solve everything, but open banking helps to create a playing field where different types of fintech solutions, different types of niche solutions can come in and solve specific problems, or solve collections of problems. And it's really about this long tail of needs, where, you know, there are people out there that have needs that are not being met, and what a great opportunity for some sort of firm to pop up, solve that problem, and build a business out of that? I think it's really a win-win.
Open banking in action: What The Fee?
Simon: There's a theme right around this that's data transparency and financial transparency. You folks at KOHO are launching a new campaign — What The Fee? — about hidden fees, and essentially giving better visibility about financial lives and hidden fees for our population. Maybe you can tell us a little more about that.
Kris: What The Fee? really began, you know, I think like many good things, with a late night conversation, and a beer. People started talking about, you know, "Oh, yeah, you know, I'm seeing this, like, I've been paying this fee," or, "I'm paying that fee."
And, you know, how do we have a sense of how we're doing compared to our peers in terms of fees? And so we came up with the concept of, you know, what if you could just connect your accounts and we could come back with a fee-o-meter that tells you how you're doing compared to the rest of Canadians?
We found that really the people that can afford to pay the fees the least, are paying the most in fees. This was really surprising for us, we didn't expect this. And we didn't really understand it until we started digging into the data and we saw that, you know, if you're really living contract-to-contract, or paycheck to paycheck and your balance is very low, you're going to get stung with an NSF fee. And then you're gonna get stung with other return item fees, and then you're gonna get stung with an overdraft interest fee. There are just a lot of fees that are predicated around low balance activities.
"It was interesting to look at what's happening in this space of fees, because so often, it's hidden. It's not all that clear that these fees are out there."
The average Canadian is maybe spending $120 a year in fees. But if you look at the people that are, you know, maybe low balance, they might be spending $120 a month in fees, because if you get one or two NSFs, that's $120 right there, and in some organizations, it really adds up.
It was interesting to look at what's happening in this space of fees, because so often, it's hidden. It's not all that clear that these fees are out there.
Simon: I think it relates to the idea of just giving back the power to consumers. If you're able to just say, "Well, yes, I would like to have an analysis of what's up in my financial life, whether it's no hidden fees, or it's just how I spend my money" — it's a great value proposition for me.
Kris: It's about information, right? So like, when I think about my banking fees, I know that I'm paying $15 a month, but I'm not sure what that means. I don't have enough information to know. That might be a great deal, or it might not be.
This is an area where people are paying, but they don't necessarily have a lot of information. And so starting to bring more information into the equation, more transparency, I think is just helpful.
The digital banking experience
Simon: What's next? Where do you see KOHO going?
Kris: I would say that we are almost endlessly ambitious, which is exciting. We have a really aggressive roadmap. We recently just launched a joint account. This is the first time that we're really able to do something that's quite new and is a new digital concept. We've been playing a lot of catch up. There's many things that we have to do that people just expect. We have to be able to take payroll deposit, we have to be able to do transfers.
With joint, we wanted to do something a bit different. The thinking is that, you know, with a traditional joint account you make an appointment, you go into a branch, you bring the other party and you sit down, and it's a very heavy construct. And so we thought, well, what if we could create like a lighter construct around that? And what if, let's say, two people could join KOHO and then send each other invites, and boom, they have a joint account?
"Joint is the beginning of a theme: forget the concepts of old, what is the new digital concept around this?"
And maybe it changes the purpose. I think a lot of joint accounts are people that are maybe living together or maybe married or something like that. But what if we had a joint account for you and your friend, that are traveling to Europe next year, and you wanna have a joint fund, and you wanna pay for the hotels together, and you wanna make sure that there's some equity in that savings relationship? What if it's for flat mates? I mean, Canadians are spending an incredible amount on housing. People are getting more creative about how they do that.
Joint is the beginning of a theme: forget the concepts of old, what is the new digital concept around this? We started that with joint. We're going to riff off of that with a few more joint-like constructs. And then we wanna take that same mindset to, you know, to the full spectrum of financial services.
Simon: On that, it's a really great point to finish the podcast. Thank you so much for your time.
Kris: Thank you for having me. I appreciate it.
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