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The two types of Open Banking providers: here’s what you need to know
Since January 2018, Open Banking has been driving dramatic change across the financial world, revolutionising everything from payment solutions and budgeting tools to lending applications and credit evaluations.
But what exactly do companies offering Open Banking do? Regulated providers build and maintain the digital pipes that allow data and payments to be securely requested from banks. Companies can provide two core services available through Open Banking through two distinct FCA authorisations:
1. Account Information Service Provider (AISP): authorised to retrieve account data provided by banks and financial institutions
2. Payment Initiation Service Provider (PISP): authorised to initiate payments into or out of a user’s account
To become regulated as an AISP or PISP, companies must undergo a rigorous application process with the FCA. Some Open Banking providers can become regulated to be both and AISP and a PISP, but many only hold one authorisation.
AISPs and PISPs handle customer consents needed to access Open Banking data. This means each AISP and PISP clearly explains to the end user what data will be accessed, for how long, and who it will be shared with. This digital consent journey also forms the basis of data processing for AISPs and PISPs under GDPR.
Account Information Service Providers (AISPs) explained:
An AISP is a company authorised to access an individual or SME's account data from their financial institutions with their explicit consent. The UK’s nine largest banks are required by law to comply with these requests from the AISPs. Open Banking's framework and technical specifications enables years of transaction history to be retrieved in seconds.
Examples of AISP applications include:
Payment Initiation Service Providers (PISPs) explained
Rather than only viewing data on an account, PISPs are authorised to make payments on behalf of a customer. PISPs do this by initiating transfers directly to or from the payer’s bank account using the bank’s own tools. This has led some industry commentors to refer to AISPs as having 'read-only' access to an individual's accounts, whereas PISPs have 'read-write' access.
Examples of PISP applications include:
How to get the most out of it
Individuals, lenders, and financial institutions are currently using Open Banking to replace previously manual and increasingly complex processes. The ability to instantly collect and view insights derived directly from bank transaction data is incredibly powerful, but can be overwhelming for businesses who haven’t had any exposure to this data before. Understanding how the technology works and what innovative companies are doing with it can make it easier to think of new applications for it. A glossary of Open Banking acronyms and definitions probably wouldn't hurt either.
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Hassan Zebdeh Financial Crime Advisor at Eastnets
08 October
Jelle Van Schaick Head of Marketing at Intergiro
07 October
Kuldeep Shrimali Consulting Partner at Tata Consultancy Services
Nikunj Gundaniya Product manager at Digipay.guru
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