The first thing to be clear about is that PSD2 open banking is not the same as UK Open Banking currently live with the CAM9, although not all of them are live!
PSD2 open banking applies to anyone who provides a ‘Transactional Account’ and in the UK the FCA defines a transactional account in the FCA Perimeter Guidance Manual as a ‘Payment Account’. So what we need then is a definition of a Payment Account which in covered in the FCA regulation 2 as: “an account held in the name of one or more payment service users which is used for the execution of payment transactions”*
So the first thing to be clear on is the definition is far wider than just bank accounts. It covers mobile and other wallets such as Paypal, it covers your prepaid cards such as goHenry, FairFx and Caxton. It also certainly covers lite banking solutions such as Soldo and Monese.
But the real question of course is how and why will anyone use PSD2 open banking, what benefits or functionality are we like to see coming to the market on the back of it. The following are just a few examples the team here at Konsentus believe you will see:
- Account Aggregation
This is the one most people talk about, the ability to see all your accounts in one place. Although in reality here at Konsentus we believe that whilst a few early adopter and financial savy consumers will want it, the real users will be SMEs with corporate treasurers who can now pull together all their accounts in one place. Particularly useful for instance if you had one bank providing your main banking relationship but another handing your Euro and USD accounts.
- Personal Finance Management
In part supporting account aggregation from a consumer perspective we are likely to see a number of companies launch services to help consumers ‘manage; their finances. Use data anlaysis to work out what you are spending and where help you forecast what your expected expenditure is likely to be. Part of the financial model of these companies is likely to be that with this information they can then offer you better deals on your FS products.
- Analysis of Finances On-Going
As with PFM solutions the analysis of finances on an on-going basis will allow third party providers to offer customers more tailored, and potentially better financial products better aligned to their needs and life cycle stage.
- Analysis of Finances One Off – Consumer Affordability.
Walking in and applying for a loan or mortgage can be daunting for you and an exspensive and time consuming process for the lender. You need to porvoe prove you can repay it, and for the lender they need to get you through the ‘affordability’ hurdle now imposed. Imagine if all they needed to do was ask for permission to access your bank account and a few minutes later a computer will have completed a full analysis and confirmed your ability to repay and affordability. In this way the lender can offer the very best rates knowing the data is 100% accurate. We are likely to see a number of companies using PSD2 open banking to access account histories to carry out this type of analysis.
- Analysis of Finances One Off – SMEs Analysis
In the SME sector many insurance products such as PI insurance are based on what the business says its turnover is and where it comes from . PSD2 open banking offers the ability for insurance customers to access real data and through computer analysis of this offer more accurate, and potentially cheaper quotations to SMEs on a range of products including insurance.
- SME Accounting
Countingup launched recently which combined your payment card and account package, Xero and other platforms are all starting to offer account integrations. Once PSD2 open banking becomes a reality the ability of SME accounting software to fully integrate to and pull down bank account data will become complete. The potential for using AI machine learning solutions then to extract data from receipts and invoices, feed into accounts packages and have this data automatically matched could remove huge costs from SMEs as the job of the bookkeeper all but disappears.
Push payments, or ‘Pay By Bank’ as it is sometimes called, delivered through PISPs has been estimated by Accenture to potentially reduce debit card payments in the UK for instance by 33%. Users from websites for instance will be directed to pages much as they are in the Netherlands through Ideal, that will enable them to push payments to retailers rather than use cards.
- P2P & B2B Transfers
Just as with push payments to retailers other push payments to both indiviuduals and business are expected to dratmicall increase under PSD2 open banking as end users become more comfortable with this process. Of course the challenge to this is the £236m of push payment fraud that was recently announced for 2017 with only 25% ever being recoverable.
- Insurance Comparison
Many SME insurance products such as PI cover are based on statements –assume comparison of insurance quotes based on financial standing. We would expect this to be significant in the SME space.
Of course the real questions is how quickly as of September 2019 when PSD2 open banking becomes live will these types of services be offered and really take off. In the view of Konsentus we are likely to seem many of the services offered but the ones that will take off fastest are likely to be those that are B2B or where the consumer is being offered better, cheaper services in return for allowing access to their data. Against this though of course has to be set the current highly sceptical view many consumers have of allowing access to bank data.
Brendan Jones CCO / Co-Founder of Konsentus Ltd. Konsentus provides a SaaS based consent and preference management solution for EU FIs enabling them to deliver PSD2 open banking. He has over 30 years’ experience in the UK & international payments industry, having held executive positions in banking, payment & technology companies including Giesecke & Devrient, Bank of America MBNA & the Datacard Corporation.