Before a financial service provider can offer Open Banking services in the United Kingdom they have to be authorized by the UK’s Financial Conduct Authority (FCA) as an Account Information Service Provider (AISP), a Payment Initiation Service Provider (PISP) or both. Here’s what this means and why these terms are important.
What are AISP and PISP in Open Banking?
AISPs and PISPs are key elements in the Open Banking initiative that’s been driving big changes in the UK and Europe since January 2018. Open Banking is revolutionizing everything from payment solutions and budgeting tools to lending applications and credit evaluations. These regulated providers build and maintain the digital pipes that allow data and payments to be securely requested from banks using Open Banking APIs.
• Account Information Service Providers are authorized to retrieve account data provided by banks and financial institutions.
• Payment Initiation Service Providers are authorized to initiate payments into or out of a user’s account.
Account Information Service Providers in Open Banking Explained
Being an authorized AISP means that a company can access an individual’s bank account data from their financial institution with their explicit consent. However, AISPs have just ‘read-only’ access. Basically, they can look at bank account information, but can’t touch it, which means they can’t actually move a customer’s money.
Payment Initiation Service Providers in Open Banking Explained
Businesses that are authorized PISPs can not only view consumer-permission financial data on a bank account, but they’re also authorized to make payments on behalf of the customer. This has led some industry commentators to refer to PISPs as having “read-write” access.
What Can AISPs and PISPs Do?
The UK’s nine largest banks are required by law to comply with requests from AISPs and PISPs. At the same time, Open Banking's framework and technical specifications enables years of transaction history to be retrieved in seconds. All of which opens up a world of financial wellness and money management applications and tools for customers.
Examples of AISP applications include:
• Money management tools: Some AISPs collect financial information and digest it in a way that makes it easy for people to understand their financial situation, create a budget, and monitor spending. These new personal finance tools bring together data from multiple bank accounts so a user can see all of their spending in one place.
• Loan applications: Some AISPs use this same capability to enable customers to quickly and securely share financial information with a lender or broker. Lenders also use derived data and metrics from account information to enhance credit and affordability decisions. This process speeds up traditional underwriting and eliminates the need for lenders to manually compile and verify bank statements. Lenders benefit from better insights, while borrowers benefit from streamlined applications.
Examples of PISP applications include:
• Financial management tools: Some new money management and savings apps transfer a small proportion of someone’s balance each week to a savings account under a previously agreed process. Open Banking has also enabled new tools that automatically transfer a customer’s money between accounts on their behalf to avoid overdraft fees.
• Business solutions: New tools integrate with business’ back-office systems to allow companies to securely manage payments and collections, make real-time bank transfers, and have greater payment visibility.
How Do Companies Become AISP or PISP?
Financial institutions looking to become either one (or both) undergo a rigorous application process with the FCA. This authorization includes the conduct of the managers, the scope and maturity of the offering(s), governance and risk management controls, financial stability and insurance coverage for when a customer suffers a loss or is otherwise harmed.
Open Banking opens up a plethora of opportunities for startups and existing companies to think of new business models. To see how AISP and PISPs are using Open Banking to transform the future of money right now, visit the UK’s Open Banking Implementation Entity.