#FinTech & #PropTech: PSD2 Will Introduce Two Buzzwords
How a payments directive may liaise the inevitable relationship between two emerging industries.
PSD2 — Open Banking Innovation
The EU’s revised Payment Services Directive, commonly referred to as PSD2, has received a lot of attention from the banking and financial industries over the past year. If you have had your ear anywhere near the pavement then you have likely heard the hype surrounding the future landscape of the open banking world. Accenture describes this data and technology-driven regulation as one that aims to drive “increased competition, innovation and transparency … while also enhancing the security of internet payments and account access.” But what does this actually mean?
Fundamental to the understanding of the potential changes associated with PSD2 is the fact that banks will now be required to allow Third Party Providers (TPPs) to access customer account and payment information, given the customer provides their consent. Using Application Programing Interfaces (APIs) as mediums for exchanging data, new services will begin emerging as TPPs begin to position themselves to better serve a market willing to securely share information in exchange for a more convenient and efficient user experience. Chiefly among these will be the increased development of Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs).
The graphic above provides a visual representation of the roles that a PISP and AISP could respectively assume in an open banking world. A PISP, whether developed by a large merchant, bank, or social media platform would be able to bypass traditional levels of transactional banking and establish a direct link between payer and payee. An AISP, on the other hand, would serve as an aggregated pool of bank and customer information. Platforms could be designed to allow consumers to access financial dashboards in order to assess and interact with their accounts, credit cards, mortgages, etc - but all in one place. They could also be used to source information about financial products available in the market, similar to how travelers are able to pull information from countless providers with regards to flights, hotels, vehicle rentals, etc.
How TPPs will touch on #PropTech
The majority of bridged interactions that will be developed are likely to be more closely related to the development of various AISPs, each serving their own function to the associated investor, manager, tenant or service provider. However, depending on how legislature is rolled out over the next few years, PSD2 may provide opportunities for market share leaders of online agent and listing services to develop their own PISPs.
As an example, some of the largest aggregated listing platforms for commercial real estate property, such as LoopNet or CoStar, may decide that they’d like to develop a state-of-the-art PISP. In theory, this payment initiator could then be licensed to any or all of their subscribers whom list or source properties on their platform. In turn, LoopNet or CoStar could collect a fee and each of the dealmakers could minimize their transactional expenses that they would otherwise be paying to the banks thanks to a unified payment system that speaks directly to their accounts.
The benefits from the development of AISPs, however, are more clearly observable when parallels are drawn between the banking and real estate worlds. Just as with banking where a customer’s transactional behavior can be used to predict future spending and thus, potential opportunities to cross-sell financial products that would benefit both bank and user, real estate service providers could be featured in these product offerings as well. Proptech service providers whether they be lenders, agents, insurers, utilities, property securities or otherwise could pay a small fee to be featured by an AISP in their tailored product offerings. A customer who, say, applies for a mortgage and is likely to be investing in further property services could benefit by these partnered suggestions.
Additionally, AISPs designed to serve a ‘search and return’ function will also benefit the more innovative proptech companies. In the same way that you are able to provide inputs to a flight search engine like Kayak or Expedia, customers will be able to input their financial needs for a mortgage or property loan and be met with pages of corresponding offers tailored exactly to their needs. This is not a novel idea and it is not only proptech companies that will be featured but they may be the best suited to exploit this opportunity as they are already well positioned in the technology market.
The PSD2 directive will undoubtedly bring about countless changes to the modern age of European banking, many of which are likely to be unforeseen by the casual observer. The overlapping of these modern technological markets does, however, seem an inevitable affair.
Ideas as to how these two industries are likely to be interacting over the next several years? Please comment below.
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