French fintech startup Lydia is going to work with financial API startup Tink for its open banking features in its app. Lydia started as a peer-to-peer payment app and now has 4 million users in Europe.
Lydia's vision has evolved to become a financial super app that lets you control your bank accounts and access various financial services. In France, you can connect your Lydia account with your bank account using Budget Insight's Budgea API.
Over the coming weeks, Lydia is going to switch over and use Tink for some clients going forward. If you have a bank account that works better with Budget Insight, Lydia will keep using Budget Insight for those accounts. If Tink is a better option, Lydia will use Tink.
"It's going to be a progressive rollout and we'll use the best service depending on our users," Lydia co-founder and CEO Cyril Chiche told me.
Open banking is a broad concept and covers many different things. In Lydia's case, we're talking about two features in particular — account aggregation and payment initiation.
In the app, you can connect your bank accounts and view the most recent transactions. This feature is important if you want to become the go-to financial app on your users' home screen.
As for payment initiation, as the name suggests, it lets you start a SEPA bank transfer from a third-party service. For instance, you can transfer money from your bank account to your Lydia wallet directly in the Lydia app. You also can move money between multiple bank accounts from Lydia.
Tink provides a single API that manages all the complexities of the information systems of European banks. An API is a programming interface that lets two different services talk and interact with each other. Tink does the heavy lifting and translates each banking API into a predictable API that you can use for all banks.
Since 2018, banks have to provide some kind of API due to Europe's DSP2 regulation. It's been a slow start, as many French banks still don't provide a usable API. But it's slowly evolving.
Tink's API supports 15 financial institutions in France, including major banks, N26, Revolut and American Express. And it covers a dozen European markets, which is going to be important if Lydia wants to grab more users outside of its home country.
"At first, it's not going to add new things to the app. But it will allow us to provide features in a very stable environment and at a European scale," Chiche said.
"We want to have the most uniform product across different markets," he added later in the conversation.
Pay with your card or with your bank account
When you first install Lydia and want to pay back a friend, you associate your debit card with your Lydia account. The startup charges your card before sending money to your friend.
If open banking APIs become the norm, you could imagine grabbing money from someone's bank account directly instead of paying card processing fees. But this sort of feature is nowhere near ready for prime time.
"What made us choose card payments is that it's a stable system with widespread usage — and it works every time. When you're dealing with payments, it has to work every single time," Chiche said.
Lydia isn't changing anything on this front for now. But you could imagine some changes in a few years. "We are the beginning of a new system that is not going to be ready within the next 18 months," Chiche said.
Cards also provide many advantages, such as the ability to chargeback a card. And card schemes have been trying new things, such as the ability to transfer money directly from a card to another card. So you're not going to ditch your Mastercard or Visa card anytime soon. But Chiche thinks there will be some competition in Europe between DSP2-ready banks and card schemes. European consumers should see the benefits of increased competition.
In other news, Lydia usage dropped quite drastically during the full lockdown earlier this year. But transaction volume has bounced back since then and reached all-time highs. The company processes €250 million in transactions every month and it is currently adding 5,000 new users every day.