Open-banking-as-a-service: what does that actually mean and how does it work?

Over the past two years, the UK and Europe’s payments’ industry has seen two key developments: the revised Payment Services Directive (PSD2); and Open Banking. Both have led to an increase of new products aimed at helping consumers use their financial data better.

We mostly hear about Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs) as a result of PSD2 and Open Banking, but we rarely hear about Open-Banking-as-a-Service (OBaaS) providers.

OBaaS is where a third party provider (TPP), like Plaid, combines access to payment account data with access to other value added banking functionality (i.e. budgeting insights). This gives financial institutions a single solution, saving them the trouble of building the systems or getting authorised or registered themselves.

How does it work in practice?

Unlike in the US, in the UK and Europe, we don’t need data access agreements with financial institutions to access payment account data because PSD2 requires all banks to open up their data to third parties that meet certain regulatory requirements.

For Plaid, this removes a step in the overall process, allowing us to easily, quickly and securely connect and access payment account data from every bank in the UK and Europe with a PSD2 API. We then clean and categorise the payment account data, and provide insights that help Personal Financial Management tools and Accounting Platforms build individually tailored products and services to the end user. The end user can then use that information to make better financial decisions.

How do we then share the data with another third party provider?

Since 2019, Plaid has been authorised by the Financial Conduct Authority (FCA) under the Payment Service Regulations 2017 [Firm Reference Number: 804718] for the provision of  Account Information Services (AIS), and Payment Initiation Services (PIS), in the UK and EU. Under PSD2, any TPP can – with a consumer’s explicit consent – provide its payment account data to another third party provider without that provider needing to build the systems to collect the data.

OBaaS is just getting started. We’re already starting to see new products enter the market using OBaaS providers to offer consumers new products and services, like Cleo and Sage. Plaid sits at the forefront of this new wave of innovative products aimed at putting consumers back at the heart of their finances.

This is the second post in our blog series on Open Banking. Read the first post, Open Banking: should I build or partner? If you’re curious about Open Banking initiatives, reach out to Plaid to see how we can help.