In a regulatory filing last Friday, (all announcements can be found here,) FreeAgent, which launched on the UK's AIM market last November, announced it has struck a deal with RBS.
The deal will see the bank offer FreeAgent accounts to some RBS and NatWest customers in exchange for access to the customer data. The announcement said that RBS and FreeAgent soft launched the offering in October 2016.
This is an unusual deal but one which reflects a similar deal that Twinfield struck with Rabobank in the Netherlands some years ago. The Twinfield deal helped Rabobank build up intelligence on its customers such that it was better able to understand risk profiles. The result was that the bank makes better lending decisions that help its customers grow their business.
The RBS deal does not provide details about the data to be collected or its usage but I assume that RBS is thinking along similar lines. FreeAgent will be paid fees directly by the bank.
At the risk of sounding too much like 'I told you so,' this is the type of deal I predicted that SaaS accounting providers would strike back in 2007. It just makes sense for everyone in the value chain. Here's why.
Today, financial (and other) institutions only have outline information concerning their customers income and spending habits. This is particularly true for micro businesses where business and private spending are often muddled. A bank cannot for example tell the difference between a home insurance and business insurance payment. Having access to the data, which FreeAgent already intelligently categorizes, allows the bank a much cleaner line of sight into business trading patterns. In turn, that opens up many doors for the provision of services that benefit customers while providing the bank with multiple potential revenue streams.
The key to making this work will come where the bank can normalize all the data it collects such that 'apples' and 'apples' are correctly aggregated for further analysis.
I have no doubt that naysayers will scream 'privacy' but then there is plenty of UK regulation surrounding this topic. For its part RBS/NatWest will need to market very carefully to ensure that customers understand the value exchange on offer.
The burning question is how far will this go?
In 2007, I predicted that it would be the SaaS provider who acts as the data broker. This deal is a twist on that because under this deal, it is the bank that holds the keys to unlocking the value inside the customer data. Even so, I expect that we will see many more of these types of deal played out over the coming years.
I still maintain that the vendor is in the best position to understand the data and to that extent, I envisage situations where firms like FreeAgent act as benchmark providers across a broad spectrum of analysis, even where an intermediary - in this case RBS - holds the main data deal.
FreeAgent serves a focused niche of contractors rather than offering the scattergun approach of other SaaS vendors who require vertical market support. That puts FreeAgent in a very strong position to offer authoritative data services, each of which ought to attract a multi million pound price tag.
To give readers an indication of scale, at the time of the AIM launch, FreeAgent reported some 43,000 paying customers. Assuming a low average gross revenue of £45,000 per customer then you can speculate that FreeAgent is processing upwards of £1.9 billion per annum. That's a LOT of transactions.
In the meantime, the AIM market seemed to like the deal. The shares popped 5.96% on the announcement, sending some trades as high as 118p. When FreeAgent launched, the shares were priced at 84p.