At the age of 16 I opened a bank account, and I picked the bank based on the free gift they gave me; the new Will Smith album, on CD. And I still use it now (the bank, not the CD).
Banks in the UK and Europe have created a strategy of offering free basic accounts to build a customer base, then generating revenue by selling financial services to this captive market and locking them in for the rest of their lives.
If the last 10 years have shown anything, it is that nearly all major industries have been transformed by technology. Closed, opaque, physical cost heavy incumbents have been replaced by technology-led, innovative, customer first businesses. But then came Open Banking.
What is Open Banking?
Open Banking is a new UK/EU government initiative, to encourage technology focused companies to enter the financial services market, and it is doing this by mandating banks to “open up the bank account” to external parties.
Why does open banking matter?
Analysts and journalists have labelled it as one of the biggest regulatory changes of the last 10 years, with PWC estimating it to be a £7B a year opportunity.
But there are currently many more questions than need answers.
What is actually happening?
What is this opportunity?
Where are these new products and services?
Never mind a physical branch, will we even need a mobile banking app in the future?
Will this make banks simply over-regulated safety deposit boxes for our digital money?
If banks excel in secure storage, does that mean they might get into cloud services, or that AWS might be a better store of money than a bank???
To name a few.
Bringing this initiative to reality is a non-profit organisation called the Open Banking Implementation Entity (OBIE), which has been set up to sit between the banks, the FCA and Fintechs. Core to the initiative is the creation of two new types of regulation.
Account Information Service Providers (AISPs)
AISPs are providers that can connect to bank accounts and retrieve information from them. A typical example of this would be an investment recommendation service: the service will be able to see how much money a user is saving each month from his income, and provide tailored advice based on his spending patterns.
Payment Initiation Service Providers (PISPs)
PISPs are players that can initiate payment transactions. This is a radical change in this industry, as currently there are not many payment options that can take money from one’s account and send them elsewhere.
Pollen hold both PISP and AISP licences, and was one of the first companies in the UK to do so. We currently have the inside track on exactly what is happening from ‘the coal face’ and we’re going to be sharing our insight. Chloe Hudson, our CTO is going to be writing a series of blog posts on what it’s like to be directly involved and I’ll be adding some commentary on how the initiative could play out over the next few years. So stay tuned.
P.s. Videos are better than words. For an official explainer video on the concept of Open Banking. Click here