PSD2 Open Banking applies to any Financial Institiution that provides a ‘Transactional Account’. For example in the UK the Financial Conduct Authority (FCA) defines a transactional account in the FCA Perimeter Guidance Manual as a ‘Payment Account’.
The definition of a Payment Account is covered in the FCA regulation 2 as:
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“an account held in the name of one or more payment service users which is used for the execution of payment transactions.”
This 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.
The real questions, of course, are how and why will anyone use PSD2 Open Banking and 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 believes 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, 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. This is 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. Using data anlaysis to work out what consumers are spending and where help them forecast what their 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 consumers better deals on their Financial Services 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 which are 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 consumers and an expensive and time consuming process for the lender. Consumers need to prove they 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 quotation. - 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 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 bookkeeper role requirement all but disappears. - Payments
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 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 dramatically increase under PSD2 open banking as end users become more comfortable with this process. One challenge this will bring is the £236m of push payment fraud that was recently announced for 2017 with only 25% ever being recoverable. - Insurance Comparison
Many Payment Service Users (PSUs) and Small Medium Enterprises (SMEs) will be able to provide third parties access to payment account information, where data can be extracted for use in comparision engines to provide individual quotes.
- Account Aggregation
In December 2019 the FCA published a document titled “Call for Input: Open Finance”. In “Section 2 Taking stock: development of Open Banking” the FCA outlines what it is seeing happen in the market, but interestingly they also highlight service developments that they themselves had not foreseen.
| Envisaged services which have developed | New developments which were not envisaged | Envisaged services which are not yet developed / early stages |
| Account aggregation | Financial inclusion | Automatic product switching |
| Account data access to inform lending decision | Protections for financially vulnerable people | Balance transfer management (credit cards) |
| Personal financial management | Legal aid and welfare support advice | High balance sweeping |
| SME financial management | Retrospective Gift Aid claims | Cashflow optimisation Interest maximisation |
| Account-to-account money transfer using PIS | Several API aggregation services have entered the market | Merchant payments using PIS |
| CBPIIs providing payment services |
UK Financial Conduct Authority, Call for Input: Open Finance, December 2019
Of course the real question is how quickly will PSD2 Open Banking become live, take off and gain user adoption, across all member states of the EEA. In the view of Konsentus, we are likely to see many of the services offered across member states during 2020, 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.
Author:
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.
