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Open Finance, Key Concepts

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Third-Party Providers, who they are and what they can do with PSD2

Every time there is talk of open banking and PSD2, third parties make their way onto the scene as new players invited to take part in a market that,until a few years ago, was forbidden to them, but which today, thanks to the new directive, is more open, welcoming and competitive than ever. It is therefore appropriate to better understand who is behind the name “third party” and what we can expect from companies defined as such.

Third Parties: Who are Third-Party Providers?

We can also see them referred to as TPPs (Third-Party Providers) and they can be of three different types that correspond to the three new services enabled by the PSD2 regulation. They are at the basis of Open Banking which is a new way of doing finance in a more open, more convenient form for users and strongly based on data.

Here are the three types of third parties and their main characteristics.

AISPs (Account Information Service Providers) offer third-party companies the ability to access the consumer’s bank to obtain information about their account. In this way the consumer can obtain information regarding accounts in different banks all on one platform giving him a convenient overview of his financial situation from which he can understand the situation of all his current accounts and also of any electronic payments made. 

PISPs (Payment Initiation Service Providers) are players that allow third parties to make a payment transaction on behalf of a buyer, subject to his authorization of course, without having to go through home banking. This means that those who use PISPs can make digital payments with greater flexibility and simplicity. 

CISPs (Card Issuers Service Providers) are perhaps the least known third parties but no less useful. They can in fact issue debit cards linked to accounts opened at another institution. They do not directly hold the funds, but are allowed to check the availability of the external support account in order to understand whether or not to finalize a payment.

Third-Party Providers: Why do they exist?

This question about third parties is not a philosophical one but it’s the desire understand how these categories of subjects, until a few years ago perhaps not even imaginable, are born. PISP, CISP and AISP owe their existence to PSD2, which obliges banks to share their APIs and customer data with authorized parties: third parties in fact. Their existence upsets the rules of the market and above all the business plans of the banks, which are now obliged to allow their customers, both retail and corporate, to have access to their accounts through third parties and also to operate online with them under the same conditions as if they were acting directly from the bank. There do not have to be specific agreements for this to happen: it is open banking.

Technically, all of this is possible thanks to the sharing and use of APIs (Application Programming Interfaces), a system of procedures that makes it possible for third-party services to communicate with banking services, to collect the necessary information and interact in the ways indicated for each category, AISP, PISP and CISP.

This change of logic and balance causes a clear improvement in the use experience of the client who sees many procedures simplified, always with maximum security, and can choose between more services with more convenient prices. 

We have seen how PISP, AISP and CISP can significantly improve the user experience of the consumer. At this point we move on to another factor, closely related to AISPs, namely Big Data platforms.

h2: European third parties: the ETPPA organization

In order to address in a coordinated and successful way the issues related to PSD2 and emerge in the competition for access to customer accounts a group of European fintech companies has formed a non-profit organization whose purpose is to assist Third Parties. It’s called ETPPA (European Third-Party Provider Association) and wants to represent the interests of these new players by verifying that there really is an abolition of the banks’ monopoly on their customers’ access to their accounts that will allow them to unlock their data by taking advantage of a wide range of value-added services.

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