The advent of the second Payment Services Directive is unleashing a new wave of human-centred fintech that will transform they way we manage our finances.
Banking is increasingly mobile. A recent report from the British Bankers Association (BBA) shows that activity on banking apps has rocketed by 354 per cent over the past five years. In total, there were 19.6 million users across the UK in 2016 – a third of the adult population – and they made 932 million transactions.
It’s not just current account services, either; the use of apps to manage savings, credit card, and mortgage and investment accounts increased 30%, 46% and 86%, respectively, in the year to the end of 2016.
The first Internet banking service in the UK was launched in 1997. Two decades later, adoption was at 30%, according to the ONS. Mobile banking has passed that in half the time. It is no longer a fad but, seen in its proper perspective, a major innovation transforming the industry as significantly as the introduction of ATMs or debit cards.
In part that should be no surprise: we are increasingly in a mobile-first world in which customers seek the speed, convenience and ease-of-use that apps can offer to manage an ever-wider range of aspects of their lives, from getting directions, to making contactless payments and for shopping on the go. We are seeing a profound and rapid transformation, and it’s natural that that banking is included in that.
As the BBA chief executive Anthony Browne put it: “Technology is changing our lives and banking is no different – it is now easier than ever for us to check our balances, pay our friends and manage our money. The rapid take up of apps and mobile banking appears to be a real game changer for the British public.”
Open banking, though, will put that transformation on steroids.
EU member states have until the 13 January 2018 to implement the second Payment Services Directive (PSD2), requiring banks to open payments infrastructure and customer data to third parties.
It is being delivered through application programming interfaces (APIs) to enable third parties to access the data and features of the banks’ systems. In early July, the UK bank-funded group Open Banking published its second API, focussing on payments initiation, to enable third parties to set up secure payments from customers’ accounts. It followed APIs issued in March for branch, ATM and product data from a range of big business and personal current account providers.
In essence, the APIs will enable third parties such as retailers (with the customer’s permission) to take payment directly from customers’ banks without using payment services such as PayPal or Visa; it also enables third parties (again with permission) to access customer account data. That opens the door to “Account Information Service Providers” gathering customers’ data across their full range accounts and consolidating it in one place. A number of apps – including Yolt’s – are already doing so.
Much more to come
This, in itself, is to likely make managing accounts through apps easier, quicker and more convenient. It should also change the way that consumers use mobiles to manage their money and provide a further boost to the ever-widening adoption of mobile banking. In the US, account information service provider Mint claims to have 20 million users.
However, we expect to see more from the introduction of open banking.
APIs for payments and data access are not meant to be the object of the move to open banking; they’re merely the tools to facilitate it. They provide the access to banks’ data and services. What banks and others do with it will be the key to the next step in the industry’s digital transformation. The point of the APIs is that they open the possibility of a true customer-centric approach to services for managing money and eliminating inefficiencies – and also adding value.
On the one hand, open banking does allow gathering information from across current accounts – and in some cases savings accounts and credit cards – in a single place to provide an overview of customers’ finances, thus eliminating the need to open different apps or sites. However, this also provides the opportunity to use the data to deliver insights on spending, bills and income – as well as tools to present this information, provide reminders and help with budgeting and savings plans.
It can go further still, though, and also provide users with the ability to act on these insights and save money. In June, Yolt launched with an energy price comparison service. By looking across all of a user’s transactions over their accounts, the app can calculate how much is spent with energy providers, evaluate where users are likely to get a better energy deal elsewhere together with a partner, and switch online directly.
Developments in open banking can open up a whole range of services that go beyond banking in order to help people manage their money better.
There is likely to be a whole range of new apps appearing in the space of money platforms in the next couple of years as a result of PS2D. Another area of future development is likely to be cross-border financial tools. PS2D is being implemented across the EU, which means customers will soon be able to connect their accounts from multiple countries into a single view and make payments between countries directly from the app.
There are many other areas in which open banking will contribute to human-centred fintech. There will be barriers, of course – both legal and practical – that will need to be overcome, but the technological barriers have largely been conquered. All that can hold us back now is our imagination. Fintech, we can predict, is about to get its second wind.
Frank Jan Risseeuw, CEO, Yolt
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