2018 is a big year for financial services, with the second payment services directive – otherwise known as PSD2 – set to transform how consumers manage and spend their money. By forcing banks to share customer account and payment details with third parties – where authorised by the customer – the new regulations will finally loosen the grip of the established players on the market, paving the way for a host of new products and services.
PSD2 has identified two types of third party providers; AISPs (Account Information Service Providers) and PISPs (Payment Initiation Service Providers). An AISP is any business that uses a customer’s account information to aggregate their financial information in one place, to help them track their spending or plan their finances. A PISP is any company that initiates online payments on behalf of the user, offering an alternative to the use of a card or online banking.
PSD2 is a potential gold mine for fintech, which has the chance to capture even more of the banks’ traditional territory, and revolutionise the banking experience for customers. So, what kind of innovative products and services can we expect to see in the next 12 months?
A single view of your accounts: Keeping track of your all your different bank accounts, pensions and loans can be time-consuming and confusing, with various logins, apps and portals to stay on top of. PSD2 should make this problem a thing of the past, by giving AISPs the power to aggregate all your different accounts in one place, so you never have to worry about losing track. A number of providers are already offering this service, such as Bud, which recently announced a partnership with HSBC, and Money Dashboard, which raised £1m through crowdfunding in 2017.
Help with budgeting: With the help of PSD2, third-party apps can also drill down into your transactions, providing insights into your spending habits and guidance around budgeting and saving. One such AISP app is Chip, which uses artificial intelligence to calculate how much you can afford to save on a monthly basis, then automatically siphoning that cash into a separate account. Another good example is Squirrel, which splits your salary up into bills, savings and a weekly allowance, to help you keep control over your money.
Robo-advice: AI-enabled financial advice is a growing trend across a number of product areas, including pensions, mortgages and insurance. But it will really come into its own following PSD2 by giving AISPs access to a much larger pool of data on which to base their recommendations. A company that is leading in this space is Personetics, which uses ‘cognitive banking’, to provide highly personalised financial advice to customers, powered by AI and predictive analytics. The technology constantly adapts to changes in earnings and spending behaviour, while using nudge theory to encourage you to make better financial decisions.
Purchase recommendations: And why limit the advice to your finances? With access to your transaction history, authorised third-party apps could conceivably advise you on broader purchasing decisions too. That could be recommending travel insurance while you’re at the airport, suggesting a new case for the laptop you’ve just purchased, or even recommending restaurants you might like, based on your past choices.
New ways to pay: PSD2 also opens up payments to third parties, which could make your debit or credit card obsolete. We all know about payment services such as PayPal and Transferwise, but we’re likely to see even more innovation in the coming months, with services that bring a whole new dimension to payments. Tech giants such as Amazon will be able to offer you an additional month of Prime in exchange for your bank account details and the payments infrastructure. Likewise companies such as Facebook will provide an easy platform for friends to pay each other money through instant messenger.
Another area to watch is beacon-based payments, which will enable shoppers to make in-store payments automatically via their mobile phone, with no payment action required. PSD2 will certainly help bring this technology, facilitated by companies such as Eon Beacon, closer to reality.
This is just the tip of the iceberg of what’s possible following PSD2, which has effectively blown the whole banking sector open. But moving into this space is not without its risks, with new players required to abide by strict rules in terms of security and consumer protection. The Financial Conduct Authority (FCA) has also set out various insurance requirements for third parties to ensure they’re sufficiently covered for the risks involved – so, finding the right insurance provider is essential.
Your best bet is talking to a tech specialist, like Digital Risks, to give you the peace of mind that you’ll be protected.