Real talk: I’m totally dependent on my Wallet. Yes, with a capital ‘W’, as in the app developed by Prague-based fintech startup, BudgetBakers. It’s essentially a personal finance manager used by some 2.5 million people around the globe – and one that tells you straight. It shows me exactly how much money I have, where it goes and how I’m faring on my budgeting goals. This is thanks to the fact that the app can tap into consumers’ account and transaction data at 3,500 banks worldwide. Seriously, it’s a money geek’s dream come true.
It’s also an early PSD2 success story. “I see the whole PSD2 initiative mainly as a helpful step from the European Union towards financial and technological innovation,”BudgetBakers CEO Michal Kratochvíl says in an article by EU-Startups. “So far, banks have had a monopoly on their clients’ transaction data, and now they will be sharing it with fintech, which is driving the force of innovation in finance. This is exactly what the European Commission aimed for with this Directive.”
I see the whole PSD2 initiative mainly as a helpful step from the European Union towards financial and technological innovation.Michal Kratochvíl, CEO at BudgetBakers
He’s not wrong. But has this become a reality?
More than two years have passed since the European Parliament adopted the revised payment services directive, also known as PSD2. The idea was simple, that is, to open up banking data. The objective was just as clear: to make payments safer, protect consumers and boost innovation and competition in the market while ensuring a level playing field for all players, new ones included, as explained by the European Payments Council. Under open banking, two key roles have emerged. Authorised account information service providers or AISPs can ask for your bank account data but can’t touch your money. Payment initiation service providers or PISPs, on the other hand, can make payments on your behalf, say move money into your savings account.
Everyone agreed that open banking’s potential was tremendous. But the jury is still out on the outcome. A recent Finastra survey of over 750 global banks and financial institutions has found that the appetite for open banking is growing, with 86% looking to use open APIs to build open banking capabilities in the next 12 months. It’s nowhere near homogenous though. For example, almost half of US respondents said that open banking helped them improve customer service, but only 19% of their UK counterparts agreed.
If you ask me, the door to a truly PSD2-driven industry has only opened a crack. And all we’ve got so far is a sneak peek into what financial services could – and should – evolve into.
Think about alternative credit scoring, one of my favourite examples. Using current account data to analyse spending behaviours, banks can now get a more accurate assessment of consumers’ creditworthiness than ever before. “Transactional data can verify my income and my identity. My transactions even show that I pay money to the union each month, so if I were ever so unlucky as to lose my job – 80% would be covered by social security,” Swedish fintech Instantor explains a millennial borrower’s point of view, and the rationale behind their credit scoring methodology. To put it another way, enriching – or downright replacing – old school credit bureau data with a holistic view of a loan applicants’ overall financial health can be a key step towards a safer, more sustainable financial ecosystem.
I’ve said it before and I’ll say it again, the tech is there to help banks, old and new, tap into the industry’s hyper-connected, data-first reality. Personalisation platforms like W.UP allow industry players to turn traditional and non-traditional customer information, from geolocation data through channel preference to favourite brands, to build all-round behavioural profiles for super-tailored seamless experiences. And to become consumers’ biggest ally in building healthier saving and spending habits. The question is: are they game?