Thread by @simonvc

Open Banking Thread 1/15

CBPII, The Bastard Stepchild of Open Banking

#openbanking #fintech #cbpii #unicorn

So everyone knows about Account Information Service Providers (AISPs), like @getyolt and @emma_finance

And may be aware of Payment Initiation Service Providers (PISPs), firms that can make payments.

But there's another permission:
Card Based Payment Instrument Issuers (CBPII)

CBPIIs are a rare beast. I've actually never met one. According to @UKOpenBanking there aren't any in the UK, but recently i heard from @TheFCA that they do exist (But they couldn't give any details to protect the confidentiality) of the firm involved.

So what could a CBPII actually do? Well the permission gets the firm the right to call a banks API, and confirm whether a particular account has a particular amount of money available. (with the customer permission).

The permission granted by the customer comes in the form: "I the user, grant X the CBPII to check whether my account at Y, my bank has £N or more available, until D date".
CBPIIs can exercise this mandate whenever they like, after it's granted up to N date, or cancelled by cust..

So by itself it doesn't seem that useful. But combined with the PISP permission, it could be used to create an "auto-topping-up" payment card, where the top-ups happen *after* the card is used.

Monzo used to be a topup card, before we got our full banking license. Some people like them. For some people the idea of a topup card you don't need to refill, where the money remains in your bank account and has FSCS will be quite attractive.

So what does this do to banks?
Well banks make some smallish amounts of revenue from "Interchange", a few pennies each time you use your card.
CBPII issuers could issue cards, backed by the banks accounts, and claim that interchange.

They'd still need to go through the non-trivial process of setting up with a holding bank like @wirecard and a processor. But unlike Monzo had to, they wouldn't have to pay for Acquiring to top up the account. Except....

Payment Initiation as its mandated by PSD2, only mandates Single Immediate Payments.. That is.. you have to ask the customer to do Strong Customer Authentication every time they make a payment.

There's lots of industry chat at the moment that PISPs and ASPSPs are doing deals to fix this, as side deals to Open Banking. These deals would give PISPs access to Variable Repeating Payments. So topups, could be truly frictionless.

But all this still relies on the card rails.. If a customer *has* to have a backing Bank account, and all Bank accounts in the UK come with cards, then why would a consumer choose to use their CBPII issued card instead of their banks?

Possibly because their CBPII issued card is actually not a card at all, but is their Google Pay, or Apple Pay wallet.

The other thing to note, is that payments to merchants don't *have* to be over the card rails. If the Merchant uses an acquirer, that has a relationship with the PISP/CBPII, then they can skip the whole VISA/MC network and go direct to the customers account and pocket the fees.

So that's all i know about CBPIIs. If you read this far and have ever seen one of these Unicorns, drop me a DM or reply. I'd love to know about it. Because it makes me sad to build APIs that no-one will use. #psd2 #thelaw #fin