Open Banking is a mandate from the UK’s CMA (Competition & Markets Authority) to the 9 biggest UK banks to open up customer transaction data to 3rd parties (TPP), that have customer consent. It goes live on 13th January 2018. There are two types of 3rd party providers (TPP): 1) Account Information Service Providers (AISP) 2) Payment Initiation Service Providers (PISP).
AISPs have read-only access: meaning they cannot move money from your account. They can only read your transaction data.
PISPs have read-write access: with customer’s consent, they can initiate payments from your account.
UK government is hoping Open Banking will deliver reliable, personalised financial advice, precisely tailed to individual circumstances delivered securely and confidentially.
The idea here is that the transaction data belongs to the user not to the bank, and opening up the data to 3rd parties will help the user — individual or SME — to access: better products (e.g. current accounts), cheaper lending costs, alternate credit scoring, helping you to avoid overdraft charges, better fraud detection etc. The benefits are enormous.
Some of the AISPs that can request your transaction data — with your consent, obviously — can be your local coffee shop or supermarket to automatically calculate and apply loyalty points by looking at your transaction history, instead of you carrying a loyalty card around. Or a FinTech application that provides you with a single user interface to view all your bank accounts in one place.
PISPs can be the likes of Amazon, who could take the payment directly from your bank account, instead of via a Card provider (Visa/MasterCard). That will reduce their transaction costs and who knows they could potentially pass those reduced transaction costs to the customer.
Your transaction data is way more valuable and powerful than your typical Google search data, YouTube or Facebook data. It tells exactly who you are, what you do, when do you get paid, and how you behave financially. I have seen product demos where products were able to — with their powerful AI and machine learning capabilities — guess if a given user is responsible (or irresponsible) with their money, willing (or not willing) to repay their debt, a single parent or even a gambler.
Some of the firms you give consent to may misuse your transaction data. Who knows one day your transaction data can become a commodity or securitised asset. The consequences of having your transaction data in the wrong hands can be devastating.
Here is a snippet from one of the app’s Privacy Policy:
What they are essentially saying is: they will collect and analyse users’ behaviour and may (or may not) sell that data.
Also, what happens when a customer revokes their consent to a certain 3rd party? Are they legally bound to delete any existing transaction data and analytics they may have with them? Here is another snippet from one of the app’s Privacy Policy:
Almost all of these FinTech apps are advertised as “free”. I’ll borrow a quote from MetaFilter: “If you are not paying for it, you’re not the customer; you’re the product being sold.” Please remember that and read “Terms & Conditions” carefully before ticking “I agree” button.
UK government hopes that opening up transaction data will encourage innovation and truly so there are a plethora of apps on the market. And the problem is they are all trying to do the very same thing. All these apps want to be your personal finance manager or assistant or advocate. Some of them are packaged as apps and some of them are as chatbots. Whatever the packaging label maybe, they are essentially trying to win the place of your personal financial assistant.
Here is a list of personal finance advocates/assistants:
MoneyDashboard
MoneyHub
Ernest Chatbot
Cleo Chatbot
Emma app
Ontrees
Yolt by ING
They are all fighting to win the interface game and become the UI that everyone likes to use. I am sure no one wants to install n number of banking or 3rd party applications to do the same task.
Here is a list of apps that try to do something extra:
bud. (Financial Marketplace)
Pariti (Debt Consolidation & Alternative Lending)
Moneybox (Save as you Spend model)
Chip Chatbot (auto-magic savings)
I hope Open Banking brings out true innovation not just from the FinTech industry but from the existing banks as well to create great apps and services — not just a bunch of cookie cutter personal finance assistant apps — that will help/serve the people and SMEs better.
Full Disclosure: I have investments in some of the companies discussed in this post.
