Since coming to Europe in 2018, open banking has enabled a host of exciting new financial products. 

Data has always played a key role in that innovation. In fact, it powers many of open banking’s longest-running use cases, from helping consumers keep track of their finances in one app to letting lenders and trading apps onboard their customers.

But as open banking has developed into a fast, frictionless payment method, financial data has continued to deliver for customers. By offering data-rich payments, businesses in a variety of sectors can streamline a host of operations, from helping companies automate bank account verification checks to making recurring payments more intuitive and so much more.

So why is financial data still so important to open banking payments? And how can you harness both to provide a better experience for your customers? Here are the basics you need to know about financial data and open banking.

What is open banking?

At its core, open banking is about giving businesses and consumers more control over their financial information. Arising from consultations around PSD2 in Europe in the mid-2010s, it seeks to increase competition in the payments sector, allowing more players to harness the power of bank-sourced data and account-to-account transactions. 

Registered companies can use it to gather data or initiate payments from a customer’s bank account. The account holder must approve any payments and can restrict or revoke account access at any time. But in return for providing access, they can use a host of flexible and innovative services. 

Open banking came to the UK in 2016. At first, the Competition and Markets Authority (CMA) compelled the country’s nine largest banks to let companies access customer accounts at the owner’s request. This happens through the use of secure application programming interfaces (APIs), which remain the standard today.

The Financial Conduct Authority (FCA) regulates open banking in the UK. It designates which companies can use customer data or initiate payments. These businesses are known as third-party providers (TPP), and they include open banking companies like TrueLayer.

Initially, open banking focused primarily on account data, inspiring a wave of fintech innovation in personal finance management, SME financing, lending and more. But the development of open banking-based payments have let businesses accept transactions directly from a customer’s bank account, providing a host of advantages over cards and other traditional methods. 

What is AIS and PIS?

The FCA divides TPPs into two categories, each with different levels of access to customers’ bank accounts. They are:

• Account information service providers (AISPs): companies that provide account information services (AIS), which draw read-only financial data from bank accounts. AISPs cannot alter data or initiate payments on behalf of their customers.

• Payment initiation service providers (PISPs): companies that offer both AIS and payment initiation services (PIS). In addition to accessing financial data, PISPs can initiate payments directly from a customer’s bank account. Account holders have full control over these payments — they can change the terms of the agreement, or cancel it, at any time.

There are multiple ways that a business can access AIS or PIS. They can register directly with the FCA to become a service provider, which can take up to a year and involves strict regulatory requirements.

Alternatively, companies can access these services through registered providers. For AIS, this involves becoming an agent of an AISP, while for PIS, it requires an integration with a registered PISP.

Read our blog on the difference between AISPs and PISPs to learn more about which option could be right for you.

How can businesses benefit from AIS?

By giving businesses access to their customers’ financial data, AIS can help streamline previously time- and resource-intensive tasks.

Take onboarding, for example. In the past, lenders and other financial institutions carried out a host of checks manually, from verifying the ownership of a bank account to performing availability checks. Today, many use AIS to obtain this information automatically, accelerating the process and ensuring they can serve their customers faster.

Fintech apps have used open banking to power their finance dashboards. With AIS, companies like Revolut, Chip and Plum can consolidate their customers’ bank accounts into one interface, making it easier for them to plan, budget and save.

Rewards platforms and finance management apps can also leverage AIS to offer personalised offers and experiences for their users. For example, a budgeting app could analyse a user’s transactions and identify opportunities to cut costs on their utilities, promoting less expensive alternatives in the process.

Why AIS is better with PIS

Today, businesses unlock the true benefits of AIS when they use it in conjunction with PIS. As a result, TPPs have begun to build a host of new products that leverage both financial data and payments.

When used with one-time open banking payments, AIS can help businesses automate bank account verification checks. Customers simply complete strong customer authentication processes, providing a password and biometrics when making an online payment. AIS then uses the information on file with the customer’s bank to confirm the ownership of the account, reducing friction for the customer while protecting the business from fraud.

AIS can similarly enhance Variable Recurring Payments (VRPs), open banking’s version of a recurring payment like a card-on-file transaction. For example, AIS can help identify when a customer may have extra money in their current account. Users can then set up a VRP to automatically move that surplus into a savings or investment account.

And as open banking matures, TPPs are finding new use cases that leverage both AIS and PIS. TrueLayer’s Signup+ is a prime example. Combining bank-sourced identity data with PIS, it lets customers sign up to a platform while making a first payment. This enables businesses to perform compliance checks quickly and securely without degrading the experience for users, making it ideal for heavily regulated sectors such as trading and iGaming.

With open banking payment volumes rising each month, financial data will play a key role in making these transactions as smooth and intuitive as possible. Rest assured: AIS will remain a key element of open banking for years to come.

To learn more about how your company can benefit from AIS and PIS, read our blog post about the benefits of open banking for businesses.