Why UK bank Tandem acquired personal finance startup Pariti

The race to capture market share from U.K. incumbent banks just got a little more competitive. Tandem has made its second acquisition, a personal finance app called Pariti that the U.K. challenger bank plans to fold into its mobile app -- which will be a much needed push as banks begin to view personal finance as a core element of the mobile banking experience. Terms of the deal were not disclosed. "These moves only make sense if one accepts that they are way behind schedule versus Monzo and Starling -- I expected them to be a challenger to those brands, and the opportunity is running away from them at the moment, since major banks are addressing it too," said a fintech startup executive who asked not to be identified. "The strategy is not clear at all." The tie-up allows the challenger bank to stake out a competitive position against the likes of Monzo and Starling -- both of which have developed personal finance tools of their own. Tandem has 25,000 customers and approximately $516 million in deposits, numbers boosted by its acquisition of Harrods Bank in August, which added a $279 million loan book and $418 million in deposits.  App-only bank Monzo has more than 560,000 customers who have spent $1 billion, and Starling reportedly has "thousands of customers" on its platform. A sophisticated personal finance offering could help it carve out a position among digital challengers, and position Tandem to compete more effectively with larger institutions, said Aite senior analyst Ron van Wezel. "The two companies seem to have a lot of overlap in their activities," van Wezel said. "Both focus on account aggregation, giving the customer control over spending behavior and budgeting. This looks like a logical step to combine forces, scale up and compete with large incumbents that are developing similar offerings." Competition among personal finance startups is expected to tighten as U.K. and Europe-wide regulations that force banks to open up their application programming interfaces to third-parties come into force this year. Rather than partnering with other companies, the acquisition gives Tandem more control over how it builds develops its mobile banking app and user experience -- which ultimately will distinguish it among a sea of similar apps. "If you're plugging a service into your mobile banking app that you consider core and you're relying on a third party to create that differentiation, you can be stuck with whatever they decide to do," said Celent analyst Stephen Greer. "If you're acquiring and it's going to become part of core offering, the benefit of that is the complete control over how you use -- you can develop on top of it whatever kinds of features you want, and it gives a greater degree of control and additional levers to differentiate." Joining Tandem made better sense than selling to or partnering with a bank because innovation "can’t come out of a very large bank," Pariti CEO Matthew Ford said in a recent interview. Pariti has worked with HSBC on an early version of its soon-to-be-released banking app, which aggregates customers' bank account and credit card information to help customers budget and save. It has also partnered with Zopa and Lendable to offer customers loans. Ford will join Tandem along with the company's chief technology officer Peter Townsend.