I think I can say with some confidence that most MoneyWeek readers aren’t waiting in feverish anticipation for the introduction of PSD2, the EU’s Payment Services Directive part two. But I think they should be. PSD2 (and the UK’s Open Banking initiative) is the next big thing for banking.
It’s a Europe-wide set of standards that has the potential to transform how we view and manage our money. In simple terms, it will open up access to your financial data. That will allow new services to be built into a digital system that might help you better manage your money, make internet and mobile payments easier, and allow for better comparisons of deals based on your transaction data. It’s a big aspiration – but the impending data revolution might even assist people who are currently financially excluded.
Banking and payments are increasingly nothing more than digits and code. One senior manager at HSBC described his organisation to me, slightly tongue in cheek, as an enormous (largely Indian) IT operation with a few shops. So, if banking is all to be done via an app, all that matters is your data. PSD2 opens up access to that data to third parties who are trusted by your bank or payment provider. But this third-party access only happens because you have given explicit consent – and obviously can only be applied to online services that are accessible via the internet. If you’ve ever used services such as Yodlee, Mint, or Money Dashboard, you might have an inkling of what’s coming. These services already plug into existing bank systems and suck out your data. They then tidy things up and allow you to visualise your spending patterns.
PSD2 will go far beyond this first step. By standardising all the data being sucked out of banking and payments systems, it will allow new outfits to provide you with new financial opportunities – to save, cut costs, or plan for the future. You might, for instance, look at your bank in an app and see an analysis of what you’ve been spending your money on, followed by a tip that helps you spend less on, say, insurance; or you might be able to cut the cost of transfers abroad, or be encouraged to save more with an online robo-adviser.
In short, it will offer better aggregation of your bank and payment services (all in one place, on your phone) and better visualisation of what you might be spending your money on (nice tools that let you see just how much money you are wasting on video streaming services, for example). It will provide clearer tools to help budget and set long-term goals (ie, “nudge” tools that encourage you to save more); make paying bills much easier, especially to people abroad; and could give you immediate access to credit scores and let you see how your credit history is evolving.
Some of the most enthusiastic fans of this financial revolution are the scrappy band of fintech starts-ups focused on digital banking and payments. One of my favourites is Revolut, which started as a cheap way of using a pre-paid debt card abroad (with near-spot rates for FX transfers), but is now inexorably turning into a bank. Another is Starling Bank, which recently launched something called a Marketplace, available through its bank app, which enables customers to browse products from other fintech providers. The first proper offer on the Starling platform is Flux, which allows Starling’s customers to receive automated loyalty points, removing the need to hold on to paper loyalty cards or receipts. Starling is also partnering with other fintech outfits, such as TransferWise, Moneybox, Tail and Houndify, all of which are expected to be on the bank’s marketplace soon.
Most of us don’t use these digi banks, of course – we’re stuck in the Stone Age with the high-street banks. But they will have to adapt to these standards, too. That’s why HSBC has just become the first of the major banks with its own app, HSBC Beta (see below).
HSBC’s open-banking app
In an effort not to be left behind by the digital start-ups, banking giant HSBC recently made its first steps into the world of open banking with the launch of its HSBC Beta app. The smartphone app will enable customers to aggregate bank accounts from 21 providers, including Santander, Lloyds and Barclays. Access will not be restricted to current accounts, but will include savings accounts, loans and mortgages too. Services include spending analysis; a “digital coach” to help you spend and save better; and a feature that rounds up what you spend and puts the change in a savings account, will be added over the next few months. The app will be trialled with 10,000 customers starting later this month, and will be on general release in early 2018.
In the news this week…
► London bullion broker Sharps Pixley has teamed up with bitcoin payment provider BitPay to allow bitcoin to be used as payment for gold and other precious metals, including silver, platinum and palladium. Customers can use the digital currency online or when buying over the counter at its London premises. It solves a major problem with investing in bitcoin, which many of its aficionados describe as a 21st-century digital gold: how to turn your stock of virtual currency into a hard asset. “We are bridging the gap between the world’s oldest currency and its newest,” says Giles Maber, Sharps Pixley’s business development director, offering customers “the means to exchange and diversify digital currency for a real, tangible asset”.
► Tifosy is an FCA-approved crowdfunding platform exclusively for sports clubs. It’s based in London and was co-founded by former football player, manager and pundit Gianluca Vialli, and offers a mixture of equity, debt-based and reward-based crowdfunding for fans. English Football League Two side Stevenage FC recently used the site to raise £600,000 for a new stand via a five-year mini-bond paying 4% a year cash, or 8% in “club credit”. League One side Shrewsbury Town is using rewards crowdfunding to build a “safe standing” area in its stadium. Tifosy is also raising £1m in equity to allow it to scale up its own operations.