Financial Services

Open Banking: Cross-industry use cases

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The two most common use cases associated with the Payment Services Directive II (PSD2) and Open Banking are account aggregation and payment initiation – typically talked about in the context of benefiting a third-party provider (TPP). However, we know that the ripples of PSD2 are not just limited to the financial services industry. Other industries are already gearing up to benefit from it. Here are some examples:

The accountancy profession and the industry continue to transform. First, a move from paper-based double-entry bookkeeping practices to digital software, and now API-driven accounting platforms are available on the cloud. All of this has happened inside a decade. The adoption of PSD2 as customers can link or, delegate authority to the accounting software to connect to the specific bank account(s). Accurate data on the platform will allow for event-based insights provided in near real-time. For example, categorisation of transactions, VAT calculations, invoices and collections-on-behalf-of, cash flow predictions and treasury functions. It is not an impossible stretch to imagine that large accounting platforms could also become lending platforms of the future based on the remarkably accurate insights they can build for their customers.

Revenue and Tax offices are also planning to utilise open banking. Primarily to support solopreneurs and ‘small’ segment of the small-to-medium-sized enterprise market, tax offices are also offering help to calculate taxes and potentially, offering the option to ‘auto-pay’ too. Individuals with PAYEE incomes should sign-up for this service to save time and hassle. However, SMEs might hesitate as nuances of running a small business cannot always be codified, even if you are the Tax Office.

Confirmation of identity is necessary for a variety of situations. The ability to delegate authority to share a bank account data proves that you have access to the account. A service provider can (a) matching account names to those supplied (b) potentially check the length of time an account was held (subject to the bank providing additional data) and (c) transferring a small amount (0.01p) with a unique code in the transaction description that the user can be requested to enter confirms that the bank account is valid and operational. If the customer shares multiple bank accounts, then (d) it is possible to assess transactions are forged simply by circulating money between known bank accounts. And finally, (e) combining banking data with additional data points such as product/ service reviews, the number of returns and refunds (transaction description) can also provide a lender with the ability to offer better-suited products.

Paper receipts have immense economic and environmental cost. And for what purpose? Only as proof of purchase for returns and warranty claims. PSD2 can enable a better way to do that and more. With appropriate buyer consent and extensions, a retailer (or its PISP) can send the receipt breakdown. This data can then be stored at the bank side, visible via the banking app and available to consumers via a search for items, retailer, location, amount etc. Currently, a detailed breakdown of in-stores spend is not visible to banks and payment networks. This use case changes that. Moral and ethical debates will need to be held to agree on the transparency of that data use and purpose.

Robo-advisors are changing the way savers think about investments. They have lowered barriers to investment and seamless customer experience regardless of whether someone is investing £100 or, £100K. Investors trust that technology is working in their interest. The regulators too, hold these platforms in high regard on how they communicate and educate the end-customer and have an affordable charging mechanism. Robo platforms are in a perfect place to use the data of a multi-banked customer and help them save a few extra pounds a month which may lead to a dream family holiday in a few years or, save for a rainy day.

Private tenants’ make up over 20% of the housing market in the UK and is on the rise. Regular, on-time and consistent rental payments currently do not help improve credit ratings that could ultimately help many get on the property ladder. Under PSD2, a tenant could share their banking data with a mortgage provider to see regular payments sustained using income and no additional help from family or the state.

Financial and mental well-being have a connection. Regular overdraft dipping and charges, obtaining payday loans and not being able to pay off the debt fully could be early intervention signals for healthcare professionals. Even a traffic light signal like information should be enough to spark a conversation or, for a GP to refer for specialist help.

Even with the limited APIs (and data) available through the current iteration and implementation of PSD2, organisations across industries can realise value, sustainability, social good and improved quality of life. However, it does require (a) thinking beyond the current organisational boundaries (b) use technology and business platforms that enable publishing and consumption of APIs, connect, store, enrich, obscure and virtualise data, apply advanced analytics and machine learning to drive value for all.

CTO, Banking and Financial Markets

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