In the good old days you went to the big box store and purchased a software application in a large cardboard box. The software as contained on a CD and you installed the software on your computer. These days, software is rarely a product any more. It’s increasingly cloud based and sold on a monthly basis as a subscription. That is what we now know as software as a service. The latest is something called banking as a service that aims to disrupt the world of banking much life the sharing economy has disrupted taxi services, hotels, and even the dining experience.
On today’s show we’re going to do a deep dive on some of the innovations in banking that fall into the open banking and banking as a service initiatives that abound in the industry.
These days a lot of the literature focuses on the mechanics of gaining access to bank data through defined software interfaces. These Application programming Interfaces (API’s) define how a third party software company can access customer data, or bank functionality or both.
It’s important to make a distinction between these two because the security of your money is at stake.
Unless you are in the business of banking, a lot of this can sound like technical jargon. On today’s show, we’re going to break it down so that you can understand what it means to you as a user of banking services.
First of all, we need to spend a little time on definitions.
Platforms break down into four main areas:
- Identity Verification
- Move Money
- Account Origination
- Design and Manage branded customer debit cards
There are a large number of startup companies developing products in the financial technology space. They’re called fintech companies. So what do fintech companies do? They offer services that previously were not possible in the market.
An example is a solution for taxis and public transportation:
In this service, the bank’s customers can send for a taxi from the bank’s own app and identify all of the charges; and the bank gets payment fees and offers the service itself.
Intuit, the maker of Quicken, Quickbooks, and Turbotax has a new product called Mint. Mint makes it possible to get a consolidated view of all your accounts, credit cards, loans and so on across multiple financial institutions on a single dashboard. You can see your entire financial life in one place. As you can imagine, that requires that each of those institutions provide secure access to your accounts so that you have the benefits and convenience of a single dashboard without the security risks of opening up your financial records to any unauthorized access.
The mint offering includes a bill payment tracker, a budget goal tracker, an investment tracker, and an integrated credit score tool. You also have access to services and products including insurance quotes, loans, and 401K to IRA roll-overs.
Another one of the recognized leaders in the open platform space is BBVA from Madrid in Spain.
The opening of these platforms would enable banks to play more directly in services like peer to peer payment which up until now have been in the exlusive domain of companies like Paypal.
The European Union has set clear rules in place for interchange of bank information and for open banking standards. These rules have put European banks well ahead of banks elsewhere in the world in terms of adopting open standards and more advanced service offerings.
One of the major frontiers in fintech is the interchange between traditional bank accounts and various blockchain technologies and crypto-currencies.If and when that happens, it may revolutionize electronic commerce on a global basis and change the relationship between you, your smart-phone, your bank, and virtually every aspect of your financial life.
