We pay for stuff every day: food, transport, clothing, etc. We deal with money and our finances every time we spend, save or invest. The problem is: it’s the stuff people are interested in. Not the paying for it, or the investing in it, or the saving it. It’s always about the end goal. The workings of how payments and banking actually works sends most people to sleep!
Next year new regulations in the UK and the EU will come into action, enabling companies to offer new financial services to consumers. It’s likely many people outside of the financial sector won’t have heard of either the EU’s second Payment Services Directive (PSD2) or the UK’s Open Banking initiative.
And why would you? You just want the stuff. Done.
It’s not like banks themselves have been advertising these changes. In a way this makes sense. PSD2 will open up our banking data to be accessed by non-financial companies, who will be able to offer us products and services tailored to us.
That sounds like a banking activity. Banks have always been the only institutions allowed to access our financial information – now they might be replaced by Fintechs or other non-financial companies with superior offers.
To get your head around what PSD2 could actually look like – imagine the “Sign in with Google/Facebook” button that often appears on websites applied to your bank. “Sign in with (insert the name of your bank)” will let you give permission to, say, a FinTech, to access your account information. Crucially – they will only have access if you, as the consumer, give this permission.
Maybe they will show you the best mortgage offer you can get based on your payment history and available funds. Maybe they will offer you discounts based on your spending habits at your favourite shops.
Some companies might show you investment products based on your available funds, and seamlessly take the regular payment out of your account, saving you with the admin. Most future offerings are either in the process of being built, or are yet to be built, because we are only at the beginning of Open Banking.
If opening up your banking information or payments capacity to companies that aren’t your bank seems like a scary prospect to you, you are not alone. According to a recent paper from Pinsent Masons and Innovate Finance, 72% of British adults would be worried about their personal details being stored by a payment company that is not their bank.
Although we complain a lot about banks, they seem to be some of the only institutions we trust to keep our money safe.
This is ironic considering the fairly recent financial crisis, but also highlights the lack of choices people have for trustworthy financial services and products.
People do tend to feel differently about banks and finance depending on their age and income. Apparently younger generations are more likely to use a new ‘PISP’ (payment information services provider) that can make payments out of their bank account, compared to a debit or credit card, if they were offered some sort of incentive.
No surprises there – us millennials love free stuff, especially if it comes through an app. The higher earning a household, the more likely they are to be encouraged by discounts to use a PISP as well. But there are still fears about data security and privacy.
Part of the problem is the lack of information: different banks are responding to PSD2 and Open Banking in different ways when it comes to informing their customers. Some are sending out booklets (as described by Sarah Kocianski in FinTech Insider episode 154 ) with lots of information. Others are scaremongering with ‘danger’ messages about companies stealing our data. Others aren’t saying anything. No wonder none of us know what’s going on.
The Open Banking website does a fair job of explaining the initiative for the UK and how the ‘CMA 9’, the 9 largest banks in the UK, will need to adopt the standards from January 2018. It also explains the use of secure APIs through which companies will access our data.
It is unlikely that whole new marketplaces of financial apps will appear overnight, but from the beginning of next year there will be the potential for any company to access banking data from the big banks, if their customers allow it.
When I say any company, I also mean Google, Facebook, and Amazon. Big tech companies already have access to lots of our data: preferences, friends, location information, purchase history, etc…
Facebook has already implemented payments through Messenger, the next step would be to directly link to your bank account for peer-to-peer payments. If Amazon could access your account, there would be no need to store card details or type them in every time to pay for things. Your recommendations could even become tailored to your specific budget.
FinTechs like Starling Bank and Tandem have already started to show some of the possibilities of Open Banking. Starling acts like a marketplace – a bank from which you can link into other apps that give you specific products.
They recently partnered with Flux, which digitises all your receipts. They also have a partnership with Transferwise, to let you exchange money at better rates. With Tandem you can link all your accounts in one place to see an overall picture of your money.
This marketplace-style banking system is likely to become more popular with PSD2 and Open Banking. We will see more choices offered by the front-end apps we will be using to manage our finances. They will have access to our banking information, either because they will be a bank themselves, or they will be given permission by us to access our banking information.
It’s an exciting time in payments and banking services.
These new regulations will undoubtedly mean wider choice for us as consumers. Security of data is built into the API rules of Open Banking and is part of the PSD2 directive.
The regulations are aimed to increase competition, because for so long banks have been able to give consumers mediocre services and products without being seriously challenged.
2018 will be the beginning of the era of Open Banking – start planning all the stuff you want to do and wait to see how the payments landscape will change to help you achieve it!