Banking and personal financial management has come on leaps and bounds since the days of personal cheque books and knowing your high street banker by name. The emergence of disruptive technology has changed the landscape of banking for generations.
Open banking is a key component of this disruption and has led to the creation of account information service providers (AISP) and payment initiation services providers (PISP).
What is open banking?
Open banking was set up by the Competition and Markets Authority to bring more competition and innovation to the financial industry. Currently, the nine biggest banks and building societies in the UK are part of the Open Banking Directory, paving the way for other banks to follow suit.
Traditionally banks kept inaccessible paper records and now that information is digitally stored on computers, open banking allows consumers to give permission to third-parties (for example budgeting, saving and banking apps) to access and use their account information to provide additional services and to initiate bank to bank payments on behalf of the users.
Third-party entities achieve this by using an application programming interface (API) which connects them to the relevant banks. This evolution in banking increases transparency for consumers, makes payments easier and has created a wave of technology enabled start-ups looking to offer these services to consumers.
AISP
An Account Information Service Provider (AISP) combines multiple bank account details into one platform. AISPs are often budgeting apps or price comparison websites that provide budgeting suggestions or product recommendations. These recommendations can be based on actual expenditure, giving consumers products which are bespoke and aligned to their needs. An AISP needs explicit consent from the user.
PISP
A Payment Initiation Service Provider (PISP) allows users to pay companies directly from their bank account, rather than using Visa or MasterCard networks. A PISP needs explicit consent from the user. This bank to bank infrastructure makes the payment process faster and more straight forward for the consumer, it also has the added benefit of being cheaper for the merchant.
Regulating open banking
The EU Payment services directive (PSD2) was established on 13th January 2018. The PSD2 directive made the Financial Conduct Authority (FCA) responsible for the regulation of open banking activities. For any company looking to offer these services they must gain the relevant permissions from the FCA. PSD2 puts requirements on those engaging in these activities to have stringent cyber risk management. It also puts onus on all banks to allow their customers access to data and use open banking services.
Many companies are taking advantage of the open banking opportunity, ranging from technology enabled start-ups through to well established financial institutions. CFC have various insurance solutions available to cater for the varied needs of different companies operating in the fintech space.
CFC are one of the few insurers in the market who can assist companies with AISP and PISP permissions, offering cover tailored to assist companies who need to meet specific PSD2 insurance requirements. Find out more about our products here or get in touch.
