Open Banking is one of the most appreciated evolutions in the financial world. It contributes immensely to improving the budgeting and payment solutions for businesses and individuals. Not just that, but it has also made credit checks and money lending aspects easier.
But what is the fundamental approach of open banking? What does it do?
Well, open banking is more like giving third-party access to regulated and authorized providers. Following that, the access is then passed onto the fintech start-ups or NBFCs, for them to introduce new financial services and products and make them more accessible to the end consumers.
Apart from the banks and the fintech companies, these service providers act as the middleman to hold onto the entire process. They are the regulated providers licensed to take care of the payment or data processing requests made to the banks.
The third-party providers or companies gaining access to the banking data are of two types, AISP (Account Information Service Provider) and PISP. We will get deeper into the concept further in this article.
What are AISP and PISP?
Firstly, you should know the role of third-party providers in brief before getting insight into AISP and PISP. Open banking providers are responsible for promoting the interactions between the bank and the end customer. In this way, the customers don’t have to directly interact with their bank to avail of the select products or services.
Instead, they can just get in touch with the fintech start-up, which is then linked with the third-party service provider platform. Once the request is conveyed to the third-party provider, it will be passed on to the bank, and the respective actions will be taken.
AISP (Account Information Service Provider) and PISP are two types of third-party service providers, or you can say they are two authorizations that enable the service providers to offer open banking services. They are defined as:
It is the authorization for an individual or a company to be able to retrieve the financial account details of someone from the banks or respective institutions.
It is the authorization for an individual or a company to initiate credits or debits from a user’s bank account upon consent.
Both of these providers are meant to handle the customer consents that are in need of accessing the open banking data. It means that the providers should clearly instruct the clients or end users about the data that they will be accessing and the institutions it will be shared with.
Let’s dive deeper into the understanding of how PISP and AISP work!
Working Approach of the AISPs
AISP (Account Information Service Provider) service providers will have control over accessing a user’s data associated with the bank account through the financial institution. The process approaches only when there’s consent from the users.
But, the AISPs only get the ‘read-only’ accessibility, which means the third-party providers can see the data and review it but won’t make any changes. Hence, the service providers with AISP authorization won’t have the right to move money from/to that account.
The data that AISPs access, upon the users’ consent, will be used for offering them innovative and personalized financial services or products. The AISPs can also collaborate with the Fintech start-ups to make these new products or services reach a larger audience.
From investment decisions to saving strategies, the data analytics, and ML algorithms associated with the dedicated platform, the AISPs can help provide service recommendations to users based on their specific needs.
AISPs are destined to streamline the financial processes for businesses and consumers altogether. Consumers can access simple tools for managing their expenditures and other financial attributes. On the other hand, the businesses will have an overview of the finances they earn from diverse sources. Thus, decision-making and service tailoring are easy with AISPs.
Working Approach of the PISPs
A PISP (Payment Initiation Service Provider) gets added accessibility from the banks more than the AISPs. They cannot just read the bank account details but also initiate payments on behalf of the end customer. PISPs have the feasibility to process payments directly from the source account without the need for any financial instruments, such as debit or credit cards.
All retailers or businesses that intend to initiate payments from one bank to another can use the service perks of the PISPs. The automated money transfer between the accounts is also possible with the services of a PISP. It ensures that the end-user does not have to bear overdraft fees.
The services offered by the PISP (Payment Initiation Service Provider) providers are quite useful for buyer journeys. Thus, it will allow businesses to connect directly with the financial accounts of regular shoppers. Hence, this will save optimal effort and time for processing the payment from the customer’s end. It is because they won’t have to enter the information multiple times, and no manual approach is necessary.
The PISPs offer the major functionality of open banking to the Fintech start-ups and the end consumers. They use open banking APIs for initiating transactions without needing a customer to log into his/her account to process them. Instead, the PISPs will set up an automated payment schedule like on any card.
The PISPs aren’t specified to any single bank. Hence, it means that the customers or businesses can take the help of these service providers, irrespective of where their current account is. Easy authentication of the payments through biometric or mobile device log-in will ensure security, efficiency, user-friendliness, no chargebacks, and ultimate affordability.
Differences Between AISPs and PISPs
There is one major difference between these two types of service providers. The AISPs have access to only manage the data. A company that is operating with just the AISP license will have limitations for just collecting the data and displaying it to the user. They do not have the right to provide services to customers or businesses involving transactions.
The primary goal of the AISPs is to provide customers with access to their finances for a better management effort. On the other hand, PISPs are dedicated service providers who have the liberty to help customers and businesses provide payment transaction-related services. Such companies can withdraw the money from the customer’s bank account for the Fintech start-ups or the banks, with their consent.
Lenders, Fintech start-ups, and other financial institutions are now using open banking solutions to replace complex and manual operations. With the ability to instantly collect, retrieve and utilize bank data, businesses can offer their end users a great service experience.
There are ample open banking service providers with both AISP and PISP (Payment Initiation Service Provider) licenses for expanding their service availability. If you are a business owner sticking to traditional financial management techniques with the customers, then now is the time to make the switch.
Obtaining the license yourself will take a lot of time, effort, and money, which isn’t the right set of approaches for businesses to deviate from their focus. Therefore, hiring licensed companies to avail the digitization services in association with payments and other financial solutions is evidently a better deal.
So, if you need a reputed and experienced AISP or PISP, get in touch with FidyPay’s consultants today! We have been in the industry for a long and have the optimal experience to scale your business on a profitable graph.