The second item on the list of payments trends for 2016 is around the way that bank clients access payment and banking services.
A key topic for a number of regulators is how to increase competition in the provision of bank account services. Some of the issues to be addressed are the sizable investments required to get a new bank off the ground, the problem of gaining access to payment and clearing services and finally ensuring that all banks can provide good interfaces to all their customers. Whilst some progress is being made on access to payment services and appropriate regulation, there seems to be a view that control over bank accounts could be provided not only through banks.
This “unbundling” of banking, similar to what happened in the telecoms, gas and electricity industries over the last 20 years, separates the provision of banking from the way that customers access it. In the telecoms industry this created increased competition with new telcos able to leverage the existing infrastructure owned by the large national provider and own the “last mile” connection to the customer, either by renting telephone lines or by installing their own connections. Could this approach work for competition between #FinTechs and banks in the same way?
The Payment Services Directive 2 establishes a regulatory regime for trusted third parties (TPPs) to access corporate and consumer bank accounts on behalf of their customers. These are broken into of two types in the directive: Account Information Service Providers, who provide services related to account and statement data such as financial analysis, and Payment Initiation Service Providers, who can enable payments from the associated payment accounts. Each TPP will have no contractual relationship with the bank or payment institution and will require customer authentication to access the payment accounts, see previous article here.
This can be successful only if there is a similar, if not identical, Application Programme Interface (API) to access accounts as a multiplicity of TPP apps to cover their holding of bank, credit card and alternative payment accounts is almost exactly what we have now with multiple banking apps used to manage accounts at each bank. Whilst the PSD2 transpositions are at least 12 months away, the work required to implement it is starting now.
With simpler access to bank account information we will see the development of innovative applications and new uses of payments data for consumers. For example allowing an insurer to see your purchase history could enable them to tailor your house contents policy to you. It is also unclear as to which organisations will become a TPP:
- Personal financial analysis businesses gaining easier access to more consumer data
- Mobile payment companies getting increasing country coverage across the EU
- Banks or existing payment institutions competing against other banks, PLC’s and #FinTechs
- Corporate banking applications gaining direct, real-time connectivity to accounts
- Debt assistance companies help consumers manage their financial accounts
- Other innovative software providers
In the UK, HM Treasury has helped to create the “Open Banking Working Group” initiative with Payments UK and the Open Data Institute. This focuses on creating open APIs for consumers and businesses to control and monitor their bank accounts. This project may well influence the way that the PSD2 is implemented across Europe and goes beyond what the directive requires. An initial report is awaited eagerly, giving a first, formal response from the payments industry to the PSD2. It is anticipated that 2016 will see more detail around the proposal and potentially some early prototypes and proofs of concept.
As the countdown to the PSD2 implementation in 2017 proceeds, more information will emerge but 2016 looks like the year which will set the agenda for access to accounts and the proposed responses from the payments industry.