Building a PFM – what you need to know about open banking

By Leon Muis, Chief Business Officer at YTS

Rapid tech advances in digital services have created an on-demand and one click culture. Consumers now expect the same when engaging with their finances. People don’t just want to rely on printed bank statements each month anymore, and are seeking more control, more personalised services and smarter insights when it comes to their financial data.

We have therefore seen the rise of personal finance management (PFM) tools. Built on application programming interface (API) technology, PFMs let people see what they spend, where they spend it, from all of their bank accounts and financial products, in one central place. But building such a service is complex and the YTS team has learnt a lot since launching Yolt, the award-winning smart money app, back in 2017.

Here are the most important things to know before attempting to launch a PFM.

The building blocks

Developing an understanding of the capabilities of open banking, and knowing how its core technologies work and connect the different parts of the financial sector, is the first step in developing a PFM platform.

Open banking comprises three core components: Account Information Services (AIS), Payment Initiation Services (PIS), and Data Enrichment (DE). AIS and DE are the most pertinent for PFMs, but PIS also has a role to play.

AIS is the most widely applicable and easily implemented functionality and will form the basis of the information integration a PFM provides. It’s AIS which collates spending information in one place through API connections between banks, building societies, and any other institution which holds customers’ financial information. There are already hundreds of different API connections between different institutions, but each is complex, costly, and time-consuming to build. At YTS, we have built and currently maintain API connections that cover 95% of bank accounts in the UK, 90% in the Netherlands and more than 80% of accounts in France, Italy and Spain.

Some have the resources to develop this technology themselves, but the majority of businesses don’t, and that’s where Technical Service Providers (TSPs), such as YTS, come in to help. The Yolt app has benefitted from the strength of YTS’ technology, and its users can now connect with 77 financial service providers across Europe – for a PFM to build these connections themselves would not only take years but would also be prohibitively expensive.

TSPs build and equip firms with ready-made APIs, giving them open banking functionality with relatively little investment and short lead times. Put simply, TSPs make open banking open to all, not just the big industry players, and hence any firm which wants to, can build a PFM platform.

Understanding the data

But what to do with the information once you have it? How do you give consumers the insights, control and personalisation they want? Data Enrichment is the answer.

DE means that the information collated through AIS, can build the personal financial picture of each user, which can then be analysed and presented in an easy to understand format, all in real-time. It’s DE which can tell a customer that they spent £50 on meals out last week, £15 more than the budget they set on the PFM platform. Categorisation and budgeting are two of the key features of any good PFM, and it’s the combination of DE which powers them.

There are clear benefits to the consumer here, but what about the platform operator? Well, generating a picture of customer behaviour will enable them to tailor and target the products and services they offer to each individual, increasing the likelihood of a successful sale. Furthermore, partnering with third-parties to sell services within the platform can be an effective way to not only improve the service offering, but also generate revenue from the PFM.

PIS is the open banking functionality that is set to elevate PFMs, accelerate their rate of adoption and transform what is possible within these platforms. It is the final part of the puzzle, and gives users ultimate control over their finances.

PIS is a new, secure way to move money, and we’re starting to see PFMs use the technology to give users the option to move money between accounts, pay friends and family, and even pay their bills all from their PFM platform. When paired with the tools which give people insight and control over their finances, PIS means open banking technology providers are taking huge strides towards changing the way people interact with financial services, forever.

Taking the first step

Armed with the understanding of the different elements of open banking, a decision on how to develop the platform has to come first.

For the majority, engaging a TSP to provide ready-made AIS and DE services, is the answer. This means they can get off the ground more quickly and create a ready-to-market service much sooner than those doing everything in-house. In a world where consumers want instant access to the best services, speed and agility to enter the market is a key consideration.

Open banking technology continues to evolve, and its capabilities will only increase over the coming years. It has already drastically altered the way financial services are delivered, and with more opportunity on the horizon, the earlier firms invest in this technology, the greater the rewards they’ll reap and the advantages they’ll have over the competition. Building a PFM might be the first step on a process of transforming a business with open banking, but it shouldn’t be the last.