The Benefits of Account Information Services (AIS) in Open Banking Explained
Account information services, or AIS for short, are among the most discussed and tempting benefits of the open banking revolution. And yes, it can sometimes feel like we have been discussing the benefits of open banking forever, but the moment of realisation is very much upon us. Indeed, the benefits of AIS are real, and the use cases are very much online and working.
Therefore, to get you up to speed, this article will cover the basics of AIS, what it is, how it can make a difference to your business and where future developments are likely to lead. The key topics we will touch on include:
- What is AIS in open banking?
- A brief history of account information services (AIS) and open banking
- Account information service: a definition
- What is an account information service provider AISP?
- What’s the difference between AIS and PIS?
- What is the difference between an AISP and a PISP?
- Are account information services (AIS) secure?
- How can businesses benefit from account information services?
- What are some excellent examples of AIS?
- Open banking meets open finance – Hello, FISPs!
What is AIS in open banking?
It’s safe to say that AIS is one of the critical cornerstones of what we have come to call open banking. However, it only came into being thanks to a unique regulatory framework adopted by markets such as the EU and the UK and the enablement of new technologies by traditional and contemporary players in the payments space.
A brief history of account information services (AIS) and open banking
Firstly, open banking enables apps, companies, and other financial institutions, such as third-party payment providers (TPPs), for example, Brite Payments, to access bank accounts with an account holder’s permission. They do this by using application programming interfaces, or APIs, to either gather financial data or initiate payments (we’ll discuss payment initiation services in more detail later).
Essentially, open banking began when the EU’s Payment Service Directive was updated in 2015 for the second time, PSD2 – laying the foundations for it across Europe. The UK followed suit with its own proposals in 2016. And, if you want to know more about how PSD2 and its successor PSD3, we recommend you download our latest explainer on this crucial bit of regulation.
The revolutionary part of PSD2, from its conception, was that it introduced requirements for banks (or technically, ASPSPs) to allow access to customer data by account information service providers (AISPs) and payment initiation service providers (PISPs) with a customer’s consent.
Indeed, Account Servicing Payment Service Providers (ASPSPs) form the bedrock of the open banking ecosystem. As mentioned, ASPSPs are typically banks, building societies and other payment companies that provide customer accounting services. Without easy access to the customer accounts they hold – via secure APIs – open banking as we know it does not exist.
Before we go any further – the definition of AIS in banking terms:
AIS stands for Account Information Service. These services use API technology to access a customer’s bank account and view account information. For example, a customer can grant permission for a TPP to access their banking data securely to view account balances, transaction history, and payment details.
Account information services are only authorised for “read-only” services when accessing an account and cannot initiate payments or transfer money from an account. While AIS does not initiate payments, it can be used as part of the process to help set up a recurring payment or inform another type of financial product, for example, a refund. They can also be combined with other services, such as customer onboarding or payment verification.
What is an account information service provider (AISP)?
An account information service provider, or AISP, is the third-party provider authorised to access a user’s bank account data via a secure API via their bank or financial institution – or ASPSP. An AISP can only perform this action on behalf of a customer if they have explicit consent. Typically, TPPs are fintech companies, but could also be other banks and financial institutions.
What’s the difference between AIS and PIS?
So far, we’ve been very focused on explaining what AIS is and what an AISP is. However, to get the complete picture, it’s worth looking at its stablemate and fellow open banking innovation, the aptly title payment initiation service, or PIS for short (top tip: always read the abbreviation and not the word it creates when talking out loud).
Account information service (AIS)
To recap, third-party providers can access financial information from multiple bank accounts, providing customers with a comprehensive view of their finances in one place for various purposes. Companies that provide these services are often called account information service providers (AISPs).
Payment Initiation Service (PIS)
On the other side of the spectrum, open banking also enables TPPs to initiate payments directly from a customer’s bank account, thus making online transactions more efficient. These payment services use the same secure APIs ASPSPs provide, for example, banks. Companies that provide these services are often called payment initiation service providers (PISPs).
What is the difference between an AISP and a PISP?
The primary distinction between AISPs and PISPs lies in their different functions. An account information service provider solely handles data. Indeed, as we have noted, AISPs are restricted to data accumulation and presentation – they are not permitted to conduct transactions.
The primary objective of an AISP – within the open banking ecosystem – is to democratise financial data access. The aim is to assist customers in better managing their financial affairs, whether enabling other financial products or simply providing them with the option of a singular interface to view their financial data.
On the other hand, payment initiation service providers (PISPs) execute payment transactions on a customer’s behalf. Companies such as TPPs can directly debit funds from a bank account – with the customer’s approval. Account-to-account transactions, or A2A payment methods, are among the biggest beneficiaries of these new services. They are using an existing secure service to supercharge it for today’s instant economy.
Are account information services (AIS) secure?
It is safe to say that AIS is secure – security and data protection are paramount in open banking. The combined application of regulations, such as the EU’s General Data Protection Regulation (GDPR), Strong Customer Authentication (SCA), and the newly unveiled Payment Service Regulation (PSR), ensure the safe and secure handling of customer data.
In fact, the implementation of PSD2 introduced the pivotal security measure for AIS: SCA. It was introduced to enable secure online access to payment accounts when requesting payment account information through AISPs. Notably, the recent PSR proposal underscores the continuity of this security measure, emphasising the enduring commitment to safeguarding sensitive financial data within the AISP framework.
To be clear, the security features of AISPs are paramount, especially within an evolving regulatory environment. Furthermore, it is worth noting that the customer’s financial insulation provides the APIs that AISPs use to retrieve information and are incredibly safe. After all, if an ASPSP does not provide a secure API connection, the customer and the account holder’s financial institution lose.
How can businesses benefit from account information services (AIS)?
The ways businesses can benefit from AIS include:
Enhancing customer experience through a unified view of accounts and transactions:
AIS enables businesses to provide customers with a single, centralised platform to access their financial data from multiple accounts, eliminating the need to switch between various applications. This streamlined approach enhances customer convenience and satisfaction.
Reducing overhead and streamlining processes:
AIS simplifies connecting to and managing financial data from various banks, saving businesses time and resources– can you imagine managing multiple connections? This streamlining can free up resources to focus on other endeavours.
Expanding reach and offering innovative services:
AIS grants businesses direct access to a broader network of ASPSPs, enabling them to reach a wider customer base and introduce innovative financial services that leverage open banking capabilities. This expansion can attract new customers and enhance a business’s value proposition.
Gaining real-time insights and improving risk management:
AIS gives businesses real-time access to customer financial data, enabling them to gain insights into their spending patterns, transaction history, and overall financial health. This info can be used to enhance risk assessment and customer profiling and deliver personalised financial solutions.
Reducing payment failures and enhancing customer confidence:
By accessing real-time account balances, AIS allows businesses to identify potential payment failures early on and take preventive measures. This reduces the risk of frustrating customer experiences and enables the company to handle payments efficiently.
Overall, by using AIS, businesses can become more competitive and deliver innovative financial solutions that meet the evolving needs of their customers.
What is the potential for AIS?
Brite Payments Connectivity Expert Rasmus Gramer points out, “As the industry evolves, I envision new applications emerging. For instance, personal finance applications could provide smart suggestions for money allocation based on spending patterns. If a user consistently has surplus funds, the app might recommend saving or investing, and vice versa.”
Indeed, if you would like to learn more about the future potential for AIS, be sure to check out our upcoming interview. In it, Rasmus also explains how best to select an AISP for today and future success.
What are some prime examples of AIS in action?
Financial management tools:
AISPs can help enable the development of more accurate personal finance management tools. These new tools will empower users to seamlessly aggregate information from multiple bank accounts through a unified dashboard. The likelihood is that features include budget creation, subscription alerts, and savings planning functionalities.
AISPs are already revolutionising the consumer loan application assessment process. Unlike traditional lending applications, which can sometimes be slow and unwieldy, AISPs enable swift and precise evaluation of loan applications. Leveraging open banking, lending companies gain access to granular and real-time data about customers’ financial positions, enhancing the precision of their decision-making processes.
Imagine account verification but in real-time? This is already a powerful service offered by some payment providers, for example, Brite. This service empowers financial institutions and businesses to validate the genuineness of a customer’s financial information instantly.
Unlike traditional, primarily manual methods, real-time account verification leverages data directly from a customer’s financial accounts using AIS. By doing so, real-time account verification ensures accuracy, efficiency, and security for customers and merchants.
The process of onboarding new customers is often time-consuming, given the multitude of required steps and checks. Incorporating AIS (Account Information Service) data into the onboarding process promises to automate these checks, introduce efficiency, and provide more comprehensive data. Plus, it can be combined with Know Your Customer (KYC) checks to enhance further the overall onboarding experience for TPPs and their customers.
Open banking meets open finance – Hello, FISPs!
On a final note, related but not dependent on open banking is the rollout of open finance. Open finance takes the use and application of different types of customer financial data to the next level.
A brief note: PSD2 was instrumental in fostering competition and innovation within the EU payment market through open banking, specifically payment account data. However, the EU saw limitations in addressing the broader data sharing across the financial sector. Therefore, included in the proposals for PSD3 and PSR was a framework for Financial Data Access (FIDA). Together, these initiatives aim to introduce the new concept of open finance.
Indeed, the EU’s open finance initiative engages and opens up the customer data of many other types of financial institutions. For example, it will include insurance providers, pension funds, credit institutions, electronic money institutions, investment funds, etc. The likelihood (or hope) is that banks and TPPs will develop new innovative use cases alongside sometimes new disruptive business models based on this exchanging data.
One of the crucial changes that FIDA proposes is the potential to grant financial information service providers (FISPs) – like AISPs but broader – the right to access a more comprehensive range of customer financial data, for example, mortgages, loans, and pension data on behalf of a customer. It is hoped by regulating FISPs, FIDA will increase transparency and credibility in the new services. Indeed, how these services, alongside existing account information services, will work will be fascinating to watch.
AIS is just one exciting fields within payments and fintech – not to mention more traditional financial institutions. As different payment methods are adopted, and new technologies come online, more and more engagement is expected with AIS as an open banking payment technology.
If you would like to learn more about how, as an AISP and a PISP, Brite Payments can help you provide innovative services or pay and get paid using instant A2A payments, please drop us a line. As a second-generation open banking payment provider, we are at the forefront of payment technology in Europe.