After scoring $130 million from Tiger Global, TrueLayer’s Francesco Simoneschi wants open banking to bridge the gap between CeFi and DeFi

In September, TrueLayer became the latest addition to the ever-expanding stable of open banking unicorns in Europe. 

Now, the firm’s CEO and co-founder Francesco Simoneschi is focused on what he sees as the untapped potential of open banking to onboard to decentralized finance. 

“My view is that open banking is probably one of the best possible payment methods you could use to move assets from outside of crypto to inside of crypto,” he says.

In Europe, open banking refers to a three-year-old framework for regulating the customer-consented transfer of banking data to authorized third parties. The concept isn’t limited to Europe, however. TrueLayer is currently expanding to Australia, another place where the fever has caught on. Most recently, the company poached Rob Hale from Regional Australia Bank, a pioneer of open banking down under.  

Open Banking is seen as a challenger to the established card-based payment systems due to how it can facilitate account-to-account transactions. That helps explain the raft of open banking startup acquisitions by legacy card corporations. In June, Sweden’s Tink was acquired by Visa and in September, the Danish open banking service Aiia was bought by Mastercard. 

Use cases for open banking range from aggregating bank accounts into one app to authentication services and even payouts. According to Simoneschi, the growing popularity of DeFi has created another obvious one.

Smoothing the onboarding process

Crypto trading and investing can be a complicated process. Customers must contend with wallet linking, access to exchanges and marketplaces, and the intricacies of digital assets that operate out of the confines of centralised finance.  

Linking payment credentials to exchanges can be a cumbersome process, requiring the user to enter their bank account or card details manually. It can also be expensive for the merchant. 

Simoneschi likens the process to installing the dial-up modem to access the internet in the 90s. Open banking can offer a method of payment that is cheaper, quicker and easier for both the merchant and customer, he says. 

Specifically, he says, TrueLayer’s PayDirect service, which taps into existing KYC methods for bank account validation such as the identity checks required before opening an account, could be utilised to help users pay into and pay out of the crypto world securely.

PayDirect works via an API that allows the user to authorize a transaction via their bank account app. The identity of the account used to fund purchases is already validated, which ensures any payouts can also be sent directly back to the same account easily. 

Although it’s early days for its crypto-focused products, TrueLayer is actively looking for opportunities, particularly in direct payment methods and the potential use of verification APIs to aid the onboarding process for DeFi platforms. 

TrueLayer’s US counterpart Plaid has made a similar pivot to crypto. In 2020, Coindesk reported that the fintech firm was working with UniSwap DeFi wallet Dharma and Teller Finance, a DeFi startup looking to bring unsecured lending to the Ethereum blockchain. 

“[There is] increasing strong interest in open banking from the centralized exchanges in the crypto world,” says Simoneschi. 

Raining on the open banking parade 

Open banking has recently come under fire for what critics call its lack of innovation. Last month, Starling executive Anne Boden called the framework “clunky” and “not a success” when addressing members of parliament during a hearing at the UK’s treasury committee. Instead, Boden says that customers want better service. 

TrueLayer and Starling have previously partnered to integrate account aggregation features into the neobank’s feature offerings. 

“I think it's a poor outcome when an executive of an important fintech like [Starling] doesn't do their due diligence and research, and they don't understand something that is systemic,” said Simoneschi. 

Boden is not alone in dismissing open banking. Monzo co-founder Tom Blomfield has previously described it as having no effect on innovation and Tide CEO Oliver Prill has argued that uptake is “too slow”. 

Adding to the pressure is the bullying scandal currently engulfing the UK’s Open Banking Implementation Entity. The head of the committee, Imran Gulamhuseinwala, resigned after allegations that he allowed a “culture of bullying and intimidation to prevail”.

Simoneschi concedes that it has taken longer than anticipated for momentum to build for open banking. But he says it cannot be “labelled a failure.” According to Simoneschi, 4 million people in the UK have used open banking services and, based on current trajectories, 60% of the population will have used the service by the mid-year period of 2023. 

“I can imagine that maybe open banking for what [neobanks] do is not that useful,” he says, citing the account aggregation feature used by neobanks to prop up their membership subscriptions as just one of the products on offer through TrueLayer’s open banking APIs.

Instead, Simoneschi points the finger at the way in which neobanks have utilised open banking features. Only Revolut, a voice notably absent from the open banking criticism, has made use of TrueLayer’s payment API. 

“It's not just presenting a budgeting tool to consumers [via account aggregation] but using this data to give them insights or smoothing out their customer journey,” he says. 

Those in the crypto space, meanwhile, are not quite as critical — indeed they have jumped at the chance to incorporate payments via open banking. Moonpay, the crypto payments startup that just closed a $555 million funding round, incorporated payments via open banking in February for UK customers with support for NFTs through a partnership with TrueLayer. The open banking startup also counts Ramp, the Polish crypto firm that closed a $30 million Series A in October, and Bitcoin Point as customers. 

To add to this, TrueLayer is eyeing up several partnership opportunities in this space that Simoneschi wasn’t ready to disclose. 

He bets that in the upcoming years, millions of people are due to enter the crypto economy — on-ramping these new customers with accounts in fiat currency will become a key priority. 

“You will have masses of customers starting to enter crypto, whether it's for buying NFTS as collectible or for investments, or even just speculation.”