A happy new world is dawning for all consumers who use financial products.
It is called The Intelligent Financial Future, or ‘TIFF’. However, there is so much underlying complexity involved that the jargon may well confuse most people who enter as early adopters. But fear not: if you don’t know your APIs from your PSD2, let alone your open banking from your open data, then you are in good company – perhaps along with 99.99% of consumers.
Here’s the short explanation: TIFF is all about getting a better deal for your financial wellbeing by liberating your banking data from the icy grip of the banks.
Your banking data is the holy grail of your financial life. Today the banks guard that data jealously and sell you what products they can, based on their understanding of your spending and income. That is coming to an end in January 2018, through a combination of technology, regulation and data standards.
Under the new rules, you can allow your banking data to be accessed by your chosen providers to offer you other services and products. So, for example, you might let a cool app provider help you plan your finances. Or you may keep an HSBC account for commodity payments and processing services, but use a different and cleverer interface from another provider to allow you to manage your financial health better. Inevitably, all this terrifies the banks.
Or you may choose to allow a comparison site to let you know the best current account deals based on your actual financial usage. This is even more scary for banks charging relentlessly for services that they suggest are free.
TIFF is happening because of a perfect storm of nifty technology (application programming interfaces), the big regulatory stick (revised payment service directive and open banking), and complex agreements over data standards (open data).
A. Technology: how TIFF is glued together
An API is technology which allows one handset or machine to get information from another and communicate back and forth, regardless of operating system. Fintech is largely dependent on these lovely little gizmos. Don’t bother with the ‘how?’ Most people don’t care how their smartphone mysteriously connects to another operating system’s handset and equally most of us certainly wouldn’t understand the answer. It’s called great progress. OK? That is quite enough on technology.
B. Regulation: why TIFF will happen
PSD2 is the Article 116 wish list that was served up by the EU to try to achieve quite a few goals, including:
1. clobbering Visa and MasterCard for charging shops and other merchants for payments at the point of sale
2. clobbering the banks (by consigning them to an even bleaker future by making them share the data they hold about your transactions, so that other providers can proposition you in an informed way).
Open banking is the UK’s kid brother of PSD2. Like PSD2, it wants to liberate your data from the banks, but open banking is a more specific and focused banking subset all of our very own.
C. Standards: how TIFF is enabled
All this now requires every single bank and payments company to design, agree and implement a massive new set of standards (security, technical and data). This is called open data, where the language, content and security are all established in a single universal lexicon. This means that ‘machine A’ can ask ‘machine B’ a question that it understands, and gets an answer back that it too can understand, automatically. This has to happen in the machines in every bank and in every participating app or service provider right across the UK.
So there will be tears along the way, and consumers should not expect a robo-advised journey to a truly personalised financial nirvana to be either simple or occur soon. But whether the banks like it or not, The Intelligent Financial Future is certain to happen and January 2018 is when it starts.
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